Wall Street posted its worst performance of the year last night, with the main indices ending down as investors interpreted a rebound in US business activity in February to mean interest rates will need to stay higher for longer to control inflation.
For the S&P 500 and Nasdaq Composite, last night marked their third session in a row closing lower, while the decline in the Dow Jones wiped out its gains for 2023.
The falls came after the S&P Global Purchasing Manufacturer's index, which reflects business activity in the USs, returned to expansion for the first time in eight months in February.
The 50.2 reading, up from 46.8 in January, was buoyed by a robust services sector, according to a survey.
The report added to a recent slew of economic data which has painted a picture of a resilient economy, which continues to perform against a backdrop of multiple rate-rises by the US Federal Reserve in 2022 aimed at tamping down inflation.
Inflation is still far from the Fed's 2% target, and the economy is retaining much of its vigour.
Money market participants have been revising upwards where they see the Fed fund rate speaking - currently at 5.35% in July and staying near those levels throughout the year.
US stocks had an upbeat start to the year after their worst annual showing in more than a decade in 2022, as investors hoped the Fed's rate-hike cycle was nearing its end.
Such positivity makes equity markets susceptible to pull-backs though, when data undermines such expectations.
Investors will look to the minutes detailing discussion at the Fed's last policy meeting, due out later toight, for further clues on attitudes within the Fed on rates.
The Dow Jones fell 697 points (2.06%) to close at 33,129, while the S&P 500 lost 82 points (2%) to 3,997 and the Nasdaq Composite dropped 295 points (2.5%) to finish at 11,492.
Among those hit by last night's widespread declines were big tech stocks, with Tesla, Amazon.com, Microsoft and Google-parent Alphabet falling between 2.1% and 5.3%.
Elsewhere, Home Depot slumped 7.1% to a three-month low after the biggest US domestic home improvement chain warned of weakening demand and issued a dour profit forecast for 2023.
Smaller rival Lowe's fell 5.1% ahead of its results next week.
Walmart forecast full-year earnings below estimates and painted a grim picture of hotter-than-expected food inflation squeezing profit margins. However, the world's largest retailer rose 0.6%.
All of the major 11 S&P 500 sectors fell, with the consumer discretionary index's 3.3% decline leading the way.
