Stocks tumbled on Tuesday to close out a losing month after higher-than-expected wage data raised fresh inflation concerns ahead of the Federal Reserve's rate decision on Wednesday.
The S&P 500 edged down by 0.9% and was set to snap a 5-month winning streak with a 3% loss for April. The Dow Jones Industrial Average fell 410 points, or 1%, bringing its losses for the month to 4.3%. The Nasdaq Composite shed 1.1% to cap a 3% decline for the month.
The Labor Department said Tuesday the employment cost index, a measure of wages and benefits, added 1.2% in the first quarter, above the 1% consensus estimate from economists polled by Dow Jones. Treasury yields jumped following the data, with the 2-year yield topping 5%.
The Fed will make its interest rate decision Wednesday afternoon and officials are likely to express a reluctance to lower interest rates anytime soon as inflation data continues to point to elevated price pressures.
The new labor cost report is "not a number that will incline the Fed to change their 'there is no rush to ease' stance," said Tom Fitzpatrick, managing director for global market insights at R.J. O'Brien and Associates.
Despite the April setback, the S&P 500 is still up more than 25% from its low last October as investors bet the economy could withstand higher rates and piled into AI plays like Nvidia. Data in the past month raised questions about whether stubborn inflation was weakening the economy while keeping the Fed in a restrictive mode. McDonald's in its quarterly report Tuesday warned about a more selective consumer due to higher prices.
"When you look at the size and the scope and the scale of the rally off the October lows, and then you layer on top of it, the stickiness of inflation in the end, ... I wouldn't be surprised to see some dampener on the market for a little period of time," Dan Greenhaus, chief strategist at Solus Alternative Asset Management, told CNBC's "Closing Bell."
Nvidia traded into the red on Tuesday as it closed out April with a 3% decline. The favorite AI play of investors was up for five months straight before this month. Shares of Amazon, another big winner of the bull market, dipped before its quarterly update after the bell Tuesday.
Following the Fed's decision Wednesday, investors will next need to grapple with the April jobs report Friday.