Dow drops 217 points in lead up to Fed verdict after hot labour costs data

"This pretty much tells you that the Fed is going to be very reluctant to reduce short-term interest rates in 2024 and that's had the predictable impact on the stock market," said Hugh Johnson, chief economist at Hugh Johnson Economics.

"It doesn't really take interest rate reductions off the table, but it does mean that this number is certainly not going to help."

The data comes ahead of the Federal Reserve Open Market Committee's (FOMC) two-day meeting later in the day, with markets focused on the interest rate verdict and Chair Jerome Powell's remarks.

Money markets are largely expecting the U.S. central bank to stand pat on interest rates on Wednesday, while pricing in just about 30 basis points (bps) of rate cuts this year, down from about 150 bps estimated at the start of 2024, according to LSEG data.

On the earnings front, GE HealthCare lost 9.6% after the medical equipment firm missed estimates for first-quarter revenue, while McDonald's fell 0.9% as it missed profit estimates for the first time in two years.

U.S. industrial conglomerate 3M gained 3.8% after posting a better-than-expected quarterly profit, while Eli Lilly added 7.6% after the drugmaker raised its full-year profit forecast.

PayPal rose 2% after the payments giant raised its full-year adjusted profit forecast.

U.S. equities have had a rough April as elevated inflation numbers sharply pulled back bets on interest rate cuts, while heightened tensions in the Middle East and earnings updates also added to the volatility.

All three U.S. stock indexes are poised to record their first monthly loss in six.

Meanwhile, a gauge of U.S. consumer confidence came in at 97 in April, against expectations of 104.

At 10:01 a.m. ET, the Industrial Average was down 216.96 points, or 0.57%, at 38,169.13, the S&P 500 was down 6.86 points, or 0.13%, at 5,109.31, and the Composite was down 11.93 points, or 0.07%, at 15,971.15.

Nine of the 11 S&P 500 sectors were trading lower, with rate-sensitive sectors such as utilities and real estate among the worst hit.

Tesla dipped 2.7% following a 15% surge in the previous session after a report that CEO Elon Musk had dismissed two senior executives and plans to lay off hundreds more employees.

Globe Life shed 2.7% after short-seller Viceroy Research revealed a short position against the insurer.

Declining issues outnumbered advancers for a 3.41-to-1 ratio on the NYSE and for a 2.04-to-1 ratio on the Nasdaq.

The S&P index recorded 15 new 52-week highs and five new lows, while the Nasdaq recorded 23 new highs and 58 new lows.