The Nasdaq led the decline Tuesday, dropping about 2.98% to 11,181.54 as investors sold off tech stocks. The S&P 500 was down 2% to 3,821.74, and the Dow was off 1.6%, dropping 490 points. The small cap Russel 2000 dropped by about 1.5% as well.

Stocks were hit early when it was shown in a new repot US consumer confidence hit a 16 month low in June due to inflation worries, which caused investors to wonder if worse consumer attitudes would cause further slowdowns in spending and activity.

During the premarket session stocks were briefly up, when at the market open, China announced it was cutting its quarantine time for new travelers in half, stoking a perception it was more completely emerging from its stringent Covid policies that were hampering economic growth. Stock indexes rose across Asia and Europe gaining broadly. US crude briefly rose above $111 and the 10-year Treasury yield was back above 3.25%, to approach last week’s high.

However the optimism didn’t last. Investors remain skittish and keenly attuned to any signs of economic deceleration in the US, as inflation continues to sit at a 40 year high and the Fed continues to assert that their only priority is curbing inflation, even if that means sacrificing economic growth. The one bright spot was data out of the University of Michigan last week showing consumers were just beginning to temper their ideas about how hot inflation would be short term. That produced the second best week for the S&P 500 in 2022.

Corporate earnings season will begin in the next few weeks, and that data will begin to inform the market on whether or not there is weakening demand from consumers, as well as how well companies have been adapting to inflation. Consensus estimates still show the S&P 500 earnings growing, in aggregate, by 10.4%. Some have said that estimate will need to be adjusted downward to reflect newer data on inflation and factor in its effect on margins. And news of late has tended to be worse than expectations.

Micron (MU), the semiconductor bellwether will kick off the earnings reports next week as things then accelerate into mid-July.

Bob Doll, Crossmark Global Investments chief investment officer said in an interview, “I think we’re gonna have a second half that’s frustrating the bulls and frustrating the bears, bouncing around a bunch as we kind of digest the economy slowing. How much of an effect does that have on earnings? Maybe we get a little better inflation news so the [price-earnings ratio of the S&P 500] doesn’t get threatened as much. But we’re moving from a period where it’s all been about PEs multiples declining. And we’re moving to a period where I think the earnings are gonna be watched more carefully than the PE.”