Dow drops 200 points, finishes month little changed in turbulent May

U.S. stocks fell in see-saw trading Tuesday as investors closed out a rocky month that saw the S&P 500 flirt with bear market territory amid inflation and recession fears.

The Dow Jones Industrial Average fell 222.84 points, or 0.7%, to close at 32,990.12. The S&P 500 dipped 0.6% to 4,132.15. The Nasdaq Composite eased 0.4% to 12,081.39. The technology-heavy index was up 0.5% at its highs and down nearly 1.6% at its lows.

After a holiday hiatus Monday, U.S. stocks wrapped up a roller-coaster May. The Dow and the S&P 500 finished the month little changed, supported by a major rally the week prior. The Nasdaq lost about 2.1% on the month.

“The market is digesting the sharp rally late last week and trying to figure out its footing,” Peter, chief investment officer of Bleakley Advisory Group, said. “We’re still far from being out of the woods here in terms of the major overhangs, being inflation, monetary tightening and rising rates.”

Tuesday’s market action underscored fears that high inflation is weighing on economic growth. In Europe, euro zone inflation readings released Tuesday hit a record high for a seventh straight month, surging 8.1% in May.

Action in the oil market was also front-of-mind for investors. Oil prices initially jumped following the European Union agreeing to ban most crude imports from Russia. Then, oil prices eased from highs as The Wall Street Journal reported the Organization of the Petroleum Exporting Countries was weighing suspending Russia from its oil-production deal.

Energy stocks comprised the worst-performing S&P 500 sector Tuesday, after being the biggest gainer earlier in the session. Chevron fell 2% and Schlumberger fell 4.3%.

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Industrial stocks linked to the economic cycle also fell Tuesday. Honeywell lost 1.4% and Nucor fell 3.8%.

Health care was another lagging sector Tuesday. UnitedHealth Group was among the biggest losers on the Dow, off by 2%.

Meanwhile, a rally in some mega-cap technology stocks provided a bit of support to the broader indexes. Amazon rose 4.4% and Google parent Alphabet gained 1.3%.

At the start of May, the Federal Reserve hiked interest rates by half a percentage point in a bid to tamp down generationally hot inflation. Recession fears have mounted as market participants fear the Fed’s policy tightening will trigger an economic decline.

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“Higher inflation and slower growth are now the consensus view but that doesn’t mean it’s fully discounted,” Morgan Stanley’s Mike Wilson said in a note Tuesday.

Disappointing quarterly reports in May from the likes of Walmart and Snap showed inflation hurting American consumers and eating into corporate profits.

Investors also eyed the continuing war in Ukraine and Covid outbreaks in China, raising concerns about global commodities and supply chain challenges.

Stocks struggled during the month amid the negative cross currents. The S&P 500 on May 20 dipped into bear market territory briefly, falling 20% below its high at one point during the session. Meanwhile, the Dow saw its longest weekly losing streak since 1923, falling for eight consecutive weeks before last week’s rally.

Last week, the Dow and the S&P 500 notched their best weekly gains since November 2020. The blue-chip average closed up 6.2% for the week, ending an eight-week losing streak. The S&P 500 gained 6.5%, and the Nasdaq added 6.8% on the week, ending positive after seven continual weeks of losses.

Still, stocks remain well off their highs. The Dow is 10.7% below its record, the S&P 500 is down 14.3%, and the Nasdaq is off by 25.5%.

“Bear markets are incredibly difficult to navigate, because they are inherently volatile and prone to sharp upside rallies,” Wolfe Research’s Chris Senyek said in a note Tuesday.

CNBC's Sarah Min contributed reporting.