us stocks trade sharply lower on tuesday but were off session lows in the final hour of trade as downbeat guidance from major retailers rising treasury yields and economic data added to worries that the federal reserve may need to lift interest rates higher and hold them there for longer to tame price pressures the dow rose friday but logged a third straight weekly decline while the sp 500 saw a 03 weekly fall its second straight decline the nasdaq composite rose 06 last week us markets were closed monday for the presidents day holiday investors returned from the long weekend on tuesday in a downbeat mood as the feds expectations on higher terminal rates continued to rattle stockmarket investors putting the sp 500 and the dow industrials on pace for their worst daily percentage declines since they closed 25 and 23 lower respectively on dec 15 according to factset data last week a flurry of hotterthanexpected inflation reports and commentary from federal reserve officials spurred investors to bet on more interestrate hikes by the central bank fed funds futures traders are pricing in a 76 probability that the fed will raise interest rates by a quarterofa percentagepoint to between 475 to 5 on march 22 followed by another 25basispoint hike in may according to the cme fedwatch tool meanwhile traders continued to nudge up expectations for the peak in the fedfunds rate with a few traders now penciling in a peak near 6 overall traders have only recently come around to the feds expectation for the fedfunds rate to peak just above 5 while the stock market has staged an impressive rebound so far this year markets are still trying to adjust to the reality that the fed is unlikely to pivot and is instead still focused on fighting inflation which suggests that investors should be prepared for interest rates to stay higher for longer said carol schleif chief investment officer at bmo family office in minneapolis wednesdays fomc minutes report is bound to reveal a closer look into the feds thinking especially given the recently released inflation and jobs numbers which are still elevated and illustrative of a hot economy she said minutes of the feds jan 31feb 1 meeting will be published on wednesday 2 pm eastern seewhy the stock market isnt as forwardlooking as investors might think when it comes to a recession the broad riskon rally has slowed to a crawl even though the higher terminal rates havent moved through assets like a wrecking ball as some had assumed said stephen innes managing partner at spi asset management but there remains a heightened degree of caution due to the steep rise in us yields and rate volatility an environment where the us dollar tends to benefit innes added readinvestors have pushed stocks into the death zone warns morgan stanleys mike wilson on tuesday yields for the 2year treasury note were coming close to the highest point in 15 years jumping to 473 the yield on the 10year treasury advanced to 395 equities are responding negatively to higher yields which raise the cost of capital for businesses and also illustrate that investors increasingly believe the feds rate hiking may be more aggressive than previously anticipated said josé torres senior economist at interactive brokers seebiden vows russia will never win war against ukraine tensions over russias invasion of ukraine as the first anniversary of the war approaches also added to the market anxiety us president joe biden visits poland on tuesday and seeks to consult with allies from natos eastern flank after paying an unannounced visit to kyiv on monday meanwhile chinese president xi jinping plans a visit to moscow for a summit with vladimir putin in the coming months wang yi the countrys top diplomat is scheduled to visit moscow this week seea potential stockmarket catastrophe in the making the popularity of these risky option bets has wall street on edge jonathan krinsky chief technical strategist at btig noted that the latest stockmarket rally had nevertheless begun to fade after a few weeks of chopping around the spx looks to have broken its shortterm uptrend just as momentum has begun to roll over similar to breaks we saw in april august and december of 2022 krinsky wrote in a note to clients as a reminder the back half of february is often one of the weaker parts of the calendar this has come on the heels of rates which have been moving higher for the last couple of weeks a slow equity reaction to rates has not been atypical over the last 18months as each of the prior six tactical peaks all occurred one to four weeks after the low in rates he added us economic updates on tuesday include the sp flash services which rose to a 8month high in february at 505 up from 468 in the prior month the us manufacturing pmi climbed to the fourmonth high of 478 up from 469 while both are increases any number below 50 points to a potentially shrinking economy still the improving pmi numbers feed into the growing market realization of rising interest rates noted peter boockvar bleakley advisory groups chief investment officer existinghome sales dropped to the lowest point in a decade tuesday data showed januarys 07 decline is the 12th straight monthly decline according to the national association of realtors figures movers  shakers home depot and walmart slip after earnings guidance facebook parent meta rises on trial of subscription tier