U.S. stocks sank to the lowest in six weeks as doubts emerged that corporate profits can withstand the Federal Reserve stepping up its battle to tame runaway inflation.

The rout persisted after the cash market closed, as results from Alphabet Inc., Texas Instruments Inc. and Microsoft Corp. disappointed. The biggest ETF that tracks the Nasdaq 100 sank another 1 per cent after the tech-heavy index plunged almost 4 per cent to the lowest in 11 months. Alphabet lost 4.5 per cent and Microsoft erased losses to gain 0.5 per cent as of 4:32 p.m. in New York. 

The S&P 500 lost 2.8 per cent during regular trading as General Electric Co. slid after its profit forecast disappointed and Tesla Inc. plunged after Elon Musk agreed to use his fortune to buy Twitter Inc. Treasuries, the dollar and oil prices all rose, while European gas surged on reports of a halt in flow.

The prospect of slower economic expansion alongside persistent inflation is leading to a febrile mood in markets. The panoply of risks spans the pandemic, supply-chain disruptions, Fed tightening and Russia’s grinding war in Ukraine. The search for portfolio buffers in the U.S. is evident in the highest relative cost of loss-protecting put contracts in two years.

“There’s no question that economic growth is in trouble, and that the runway for central banks to manage a soft landing is getting smaller as wages and inflation move higher,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments. “The big question for asset allocation is not whether inflation will be high. That’s a given. Instead, it’s whether growth can keep up.”

U.S. corporate earnings are providing some solace for equity bulls -- close to 80 per cent of firms have beaten profit expectations including GE, United Parcel Service Inc. and Pepsico Inc. However, disappointing forecasts, including those from JetBlue Airways Corp., are weighing on shares. 

CHINA BOOST

Stocks in Europe followed those in the U.S. lower, erasing gains earlier in the session from positive corporate results and a sentiment boost from China’s pledge to support its COVID-hit economy.

Most of Beijing is being tested for the virus, fanning fears of an unprecedented lockdown that could drag on global growth. However, Dennis DeBusschere, founder of 22V Research, said concern over the inflationary pressures may be overblown.

“There are no compounding supply chain pressures from other important supply chain countries like in 2021,” he said. “There is softer consumer demand in general, service spending is recovering (moderating goods spending) and the USD is moving higher.”

An Asia-Pacific equity index eked out a climb for the first time in four sessions amid a 3 per cent jump in technology shares in Hong Kong. Mainland Chinese bourses dipped but avoided the kind of plunge witnessed Monday. The yen pushed higher amid short covering.

Events to watch this week:

• Tech earnings include Alphabet, Meta Platforms, Amazon, Apple
• EIA oil inventory report, Wednesday
• Australia CPI, Wednesday
• Bank of Japan monetary policy decision, Thursday
• U.S. 1Q GDP, weekly jobless claims, Thursday
• ECB publishes its economic bulletin, Thursday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 2.8 per cent as of 4:01 p.m. New York time
• The Nasdaq 100 fell 3.9 per cent
• The Dow Jones Industrial Average fell 2.4 per cent
• The MSCI World index fell 2.1 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.5 per cent
• The euro fell 0.7 per cent to US$1.0642
• The British pound fell 1.2 per cent to US$1.2585
• The Japanese yen rose 0.5 per cent to 127.45 per dollar

Bonds

• The yield on 10-year Treasuries declined seven basis points to 2.75 per cent
• Germany’s 10-year yield declined two basis points to 0.81 per cent
• Britain’s 10-year yield declined four basis points to 1.80 per cent

Commodities

• West Texas Intermediate crude rose 3.7 per cent to US$102.20 a barrel
• Gold futures rose 0.3 per cent to US$1,902.30 an ounce