Growth stocks drag Wall Street lower on rate hike worries

© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 11, 2022. REUTERS/Brendan McDermid

By Devik Jain and Amruta Khandekar

(Reuters) - Wall Street's main indexes fell on Thursday, with growth stocks leading declines for a second straight session as investors worried that aggressive interest rate increases to curb decades-high inflation could tip the economy into recession.

Megacap stocks Meta Platforms, Microsoft Corp (NASDAQ:MSFT), Google-owner Alphabet (NASDAQ:GOOGL) Inc, Apple Inc (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA) Inc slipped between 2% and 5.9%.

Ten of the 11 major S&P sectors declined in morning trade. Technology and consumer discretionary stocks fell 1.2% and 2.4%, respectively.

The tech-heavy Nasdaq index slumped more than 3% on Wednesday, after data showed U.S. consumer prices moderated in April but were likely to stay hot for a while and keep the Federal Reserve's foot on the brakes to cool demand.

A Labor Department report on Thursday showed the producer price index (PPI) for final demand rose 0.5% in April, in line with expectations, compared with a 1.6% increase in March.

"What we're seeing is that inflation is starting to slow down but the velocity was not as fast as people had hoped. So I think markets are still scared about that," said Gene Goldman, chief investment officer at Cetera Investment Management.

"There's really a lot of uncertainty around the Fed right now. If they are too aggressive, that hurts economic growth, but (if) they're too conservative, higher inflation hurts consumption, which also hurts growth."

Growth stocks, which led Wall Street's rally from the pandemic lows in 2020, have borne the brunt of a selloff this year as their returns and valuations are discounted more deeply when rates rise.

The S&P 500 growth index has dropped 26.8% so far this year, a much larger decline compared with a 9.1% fall in its value counterpart, which houses economy-sensitive sectors like banks, energy, and industrials.

Traders are pricing in a 61% chance of a 75 basis point hike by the Fed in June. [IRPR]

At 10:02 a.m. ET, the Dow Jones Industrial Average was down 294.57 points, or 0.93%, at 31,539.54, the S&P 500 was down 53.09 points, or 1.35%, at 3,882.09, and the Nasdaq Composite was down 193.70 points, or 1.70%, at 11,170.53.

Among other stocks, Walt Disney (NYSE:DIS) Co slid 3.9% after the entertainment giant's second-quarter revenue and profit fell short of estimates and it cautioned that supply chain disruptions and rising wages could pressure finances.

Plant-based protein maker Beyond Meat (NASDAQ:BYND) Inc was last down 1% after breaking below its IPO price of $25 at the open as quarterly losses ballooned.

Tapestry (NYSE:TPR) climbed 10.6% after the Kate Spade owner said it was confident that demand for its luxury bags and apparel in China would recover after the key growth market lifts COVID-19 curbs.

Declining issues outnumbered advancers for a 2.67-to-1 ratio on the NYSE and a 1.96-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week highs and 72 new lows, while the Nasdaq recorded four new highs and 1,243 new lows.