U.S. stock markets closed lower after a  choppy session on Tuesday. A strong economic data raised market participants’ concern that the Fed will not hesitate to hike interest rate aggressively in order to combat mounting inflation. Geopolitical conflicts in Europe also dented investors’ confidence. All the three major stock indexes ended in red.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.6% or 173.14 points to close at 31,145.30. Notably, 27 components of the 30-stock index ended in negative territory while 3 in green. The major loser of the blue-chip index was 3M Co. (MMM Quick QuoteMMM - Free Report) , shares of which tanked 4.2%. The stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The tech-heavy Nasdaq Composite finished at 11,544.91, dropping 0.7% due to weak performance of large-cap technology stocks. The tech-laden index recorded seven consecutive days of losses for the first time since 2016.

The S&P 500 slid 0.4% to end at 3,908.19. Seven out of the 11 broad sectors of the benchmark index closed in negative zone while four in green. The Communication Services Select Sector SPDR (XLC) fell 1.2% while the Real Estate Select Sector SPDR (XLRE) rose 1%.

The fear-gauge CBOE Volatility Index (VIX) was up 3.5% to 26.91. A total of 10.71 billion shares were traded Tuesday, higher than the last 20-session average of 10.46 billion. Decliners outnumbered advancers on the NYSE by a 2.46-to-1 ratio. On Nasdaq, a 2.12-to-1 ratio favored declining issues.

Strong Economic Data

On Sep 6, the Institute of Supply Management (ISM) reported that its U.S. Services index came in at 56.9% in August compared with 56.7% in July. The consensus estimate was 55.5%. Any reading above 50% indicates expansion of services activities. August marked the 27th consecutive months of expansion of the services industries.

On Sep 1, ISM reported that the Manufacturing index for August came in at 52.8%, remained flat with July. The consensus estimate was 51.7%. A reading above 50% means expansion of manufacturing activities. On Sep 2, The Department of Labor reported that job additions in August came in at 315,000 beating the consensus estimate of 295.000.

Geopolitical Conflicts in Europe

Over the weekend, Russia decided it would shut down the Nord Stream energy pipelines to Europe — ahead of colder fall and winter months — until sanctions are lifted against the country. The sanctions were brought about following Russia’s invasion of Ukraine in late February. Moreover, the OPEC has decided to cut its production quota in October. Massive shortage of energy products and higher costs have started affecting major European economies to a great extent.

Concerns on Aggressive Rate Hike

Strong economic data indicate that the U.S. economy is resilient enough and will not fall into a recession anytime soon. Market participants are concerned the Fed continue to pursue a hawkish stance to combat inflation.

Fed Chairman Jerome Powell and various other top Fed officials with voting rights have indicated that the rigorous rate hike will continue until inflation is at least down to near the Fed’s 2% target rate. Investors were hoping for a rate cut in 2023, which at present, looks like a remote possibility. As a result, market participants are highly concerned about a recession in the U.S. economy in the near future. Fed Chairman has also warned of toughness going forward.

On Sep 6, the yield on the benchmark 10-Year U.S. Treasury Note jumped to 3.345%, its highest since Jun 16. The yield on the short-term 2-Year U.S. Treasury Note stood at 3.499%. The inversion of yields between  10-Year and 2-Year Treasury Notes continues for four-straight month. Several economists and financial experts consider this situation as an indication of near-term recession.