U.S. Stocks Fall After Labor Day Weekend

U.S. stock indexes fell Tuesday, driven by expectations for tighter Federal Reserve policy and an energy crisis in Europe.

The S&P 500 fell 0.7% after the long Labor Day weekend, following a turbulent session Friday that dragged major indexes lower. The Dow Jones Industrial Average also declined 0.7%, while the tech-focused Nasdaq Composite lost 1%. The major indexes all have fallen for three consecutive weeks.

Stocks around the globe have come under pressure in recent weeks as worries about tighter monetary policy in the U.S. and a darkening economic outlook in Europe have led investors to sell riskier assets. 

Within the S&P 500, nine out of 11 sectors were in the red during afternoon trading, with only real estate and utilities gaining.

Many investors say they have given up hope that the U.S. stock market’s rapid rise from mid-June to mid-August was the start of a new bull market, and have instead accepted that it was likely a bear-market rally. The S&P 500 has already fallen more than 8% from its August peak, based on Friday’s close.

“It’s going to be really focused on, ‘OK, just how bad does it become, given how restrictive the Fed has been and continues to be?’” said Tim Chubb, chief investment officer at Girard Wealth Advisory.

The ISM services sector index, a barometer of business conditions at companies such as restaurants and hotels, rose to 56.9% in August from 56.7% in the prior month, the Institute for Supply Management said Tuesday. It is the highest level since April. Economists polled by The Wall Street Journal had expected the index to drop to 55.5%.

Contrasting that, a separate survey from S&P Global Market Intelligence showed that U.S. Services PMI Business Activity Index fell to 43.7 in August, down from a “flash” estimate of 44.1 and a reading of 47.3 in July. The ISM services index surveys large companies while the S&P survey also includes small and medium-sized ones.

Many investors fear that continued aggressive interest-rate increases will push the U.S. economy into a protracted economic downturn. Consumers are already feeling particularly downbeat, and analysts have begun lowering their third-quarter earnings estimates

“As pressure builds on companies and consumers and the downturn deepens, that’s going to weigh on stock prices,” said Susannah Streeter, senior investment and markets analyst at

Hargreaves Lansdown.

“There’s still some way to go with falling stocks, just given how high prices climbed during the pandemic.”

In the U.S. bond market, the yield on the two-year Treasury note, which is more sensitive to near-term Fed policy expectations, rose to 3.499%, from 3.398% Friday. Meanwhile, the yield on the benchmark 10-year note rose to 3.334%, from 3.190%. Yields rise when bond prices fall.

“Until Treasury yields slow down, it’s going to be hard for equities,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Management.

Some investors are betting inflation will continue to be high next year, too. Eddie Ambrose, partner at Sound View Wealth Advisors based in Georgia, said he is seeking safety in stocks of dividend payers that have continuously offered and grown dividends.

“They are boring, but boring is good right now,” Mr. Ambrose said. “They’re paying you something to hold them.”

Traders worked on the floor of the New York Stock Exchange on Thursday.


Spencer Platt/Getty Images

In energy markets, Brent crude retreated, falling 3.1% to $92.79 a barrel, amid growing concerns that lockdowns in China could stem demand. Meanwhile, Benchmark European gas prices fell about 6.5% after jumping by one-third at one point on Monday. 

OPEC+ agreed Monday to cut oil production for the first time in over a year, delegates said, saying it should pull back about 100,000 barrels a day amid fears of a global recession and more Iranian crude coming to the market in the event of a revived nuclear deal.

European stock markets rebounded after falling Monday following Russia’s indefinite halt of natural-gas flows through a major pipeline. The pan-continental Stoxx Europe 600 rose 0.2%, while Germany’s DAX gained 0.9%. The British pound was little changed after recently sliding to its lowest level against the U.S. dollar since 1985. 

The easing of prices in energy markets Tuesday was among the catalysts for European stocks’ rebound, Ms. Streeter said. Now, attention has turned to the European Central Bank’s interest-rate decision due on Thursday. In the U.K., many investors also are focused on the agenda ahead for

Liz Truss,

who won the race to lead the ruling Conservative Party and become Britain’s next prime minister

In Asia, Hong Kong’s Hang Seng fell 0.1%, while China’s Shanghai Composite gained 1.4%. Japan’s Nikkei 225 ended roughly flat.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

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