The Dow Jones Industrial Average dropped nearly 600 points Tuesday after Federal Reserve Chair
Jerome Powell
said the central bank would likely lift interest rates more than previously expected to fight inflation and cool down the economy.
The blue-chip index fell 574.98 points, or 1.7%, to 32856.46. The S&P 500 dropped 62.05 points, or 1.5%, to 3986.37. The technology-focused Nasdaq Composite retreated 145.40 points, or 1.2%, to 11530.33.
The declines were broad: 29 of the 30 stocks in the Dow declined as did all 11 sectors in the S&P 500.
Bank stocks, which are particularly sensitive to rising rates, were among the day’s biggest losers. Shares of
dropped $2.18, or 4.7%, to $44.45 while
slipped $7.92, or 5.2%, to $144.20. The S&P 500’s financials sector dropped 2.5%, its worst day since September, according to Dow Jones Market Data.
The yield on two-year Treasury notes climbed to 5.011%, its highest close since 2007, from 4.892% Monday. It finished more than a percentage point above the 10-year yield, the biggest such gap since September 1981.
That pattern, called an inverted yield curve and often taken as a warning sign of economic trouble ahead, suggests that investors believe coming Fed rate increases will have to be followed by future cuts as the economy eventually slows down.
In the first of two hearings on Capitol Hill this week, Mr. Powell told the Senate Banking Committee that continued strength in hiring, spending and factory production has partly reversed softening inflation trends from late last year.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Mr. Powell said. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Federal unemployment numbers due Friday, as well as updated data on the consumer-price index slated for next Tuesday, could add clarity before Fed officials’ next meeting on March 21-22.
Stock and government-bond markets stumbled last month as money managers began to doubt that the central bank could engineer what is known as a soft landing, when inflation recedes without a recession.
“So far, nothing is working for them this year,” said John Augustine, chief investment officer for Huntington National Bank. “They haven’t slowed down employment, they haven’t slowed down the economy and they haven’t slowed down inflation to levels they want. ”
Stocks have stabilized in March, but investors remain cautious given the prospect for a further rise in borrowing costs that could deter investment. The S&P 500 has edged up 0.4% this month, extending its gains for the year to 3.8%.
Fed Chair Jerome Powell’s congressional testimony this week will be a focus of investors.
Photo:
ANDREW KELLY/REUTERS
Last month, the Fed raised its benchmark federal-funds rate by a quarter-percentage-point to a range between 4.5% and 4.75%. It slowed the pace of rate rises following increases of a half-point in December and 0.75 point in November.
But some investors now expect the central bank to again accelerate rate increases in the hope of cooling the labor market and overall inflation.
Traders in interest-rate futures expect the federal-funds rate to reach as high as 5.6% in October and sit around 5.5% at year-end, according to FactSet. In early February, before a string of economic data sparked a change in wagers, traders forecast the benchmark rate topping out around 4.9% in July before falling near 4.5% through December.
“Now, the market is expecting inflation to come down more slowly,” said Sunitha Thomas, national portfolio advisor at Northern Trust Wealth Management. “More of that is priced in than it was before.”
Live Q&A
The Bull and Bear Cases for Crypto
The Journal’s lead writer for live markets, Gunjan Banerji, sits down with former White House communications director and crypto bull, Anthony Scaramucci, and former chief of the Securities and Exchange Commission’s Office of Internet Enforcement and crypto bear, John Reed Stark, for a conversation about the bull and bear cases for crypto.
Among individual stocks,
fell $2.49, or 15%, to $14.64 after the electric-vehicle maker said it plans to sell $1.3 billion in convertible notes in a private offering.
slipped 24 cents, or 2.9%, $8.16 after the Justice Department sued to block its planned takeover of
which rose 77 cents, or 4.7%, to $17.13. Delta, United and other airlines also gained.
Global markets were mixed. The Stoxx Europe 600 edged down 0.8%, Japan’s Nikkei 225 rose 0.3% and the Shanghai Composite Index lost 1.1%.
Chinese stocks fell after trade data showed Chinese imports and exports both shrank in the first two months of the year, complicating Beijing’s efforts to juice the economy. A mixed outlook on the country’s recovery, coupled with Mr. Powell’s warning of higher interest rates, pushed front-month futures for West Texas Intermediate crude down $2.88, or 3.6%, to $77.58 a barrel.
The change in sentiment in recent weeks has led some investors to re-evaluate their strategies for the year ahead. Joseph Little, chief strategist at HSBC Asset Management, said his institution is wary of stocks and corporate bonds, which he said look expensive given how high interest rates are heading and a likely downturn in company profits.
“We are experiencing the fallout from this rapid period of monetary tightening,” he added.
Write to David Uberti at david.uberti@wsj.com and Joe Wallace at joe.wallace@wsj.com
Corrections & Amplifications
The yield on the benchmark 10-year Treasury note hovered around 3.993% at the start of Fed Chair Jerome Powell’s testimony before the Senate. An earlier version of this article incorrectly said it was 3.933%. (Corrected on March 7)
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
![5 Roles Sales Decision Makers are Looking to Fill in 2023 [New Data]](https://blog.hubspot.com/hubfs/interview%20for%20roles%20that%20sales%20decison%20makers%20are%20looking%20to%20fill%20in%202023.jpg#keepProtocol)
