© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, US February 27, 2023. REUTERS/Brendan McDiarmid/File Photo
by Sinead Carew and Shruti Shankar
(Reuters) – U.S. stock indexes were down sharply on Tuesday after Federal Reserve Chairman Jerome Powell told Congress the central bank will need to hike interest rates more than ever before as it seeks to rein in high inflation. Closed.
Wall Street’s three major indexes were the biggest losers, with losses of 1.7%, compared with losses of 1.5% and losses of nearly 1.3%.
Powell sent stock investors fleeing when he told US lawmakers earlier in the day that the Fed was prepared to hike rates in a big way if future economic data showed tougher measures were needed to control rising prices. Is.
The remarks followed recent data showing an unexpected inflation increase in January and an unusually large jobs increase for the month.
Traders dramatically increased their bets for a 50-basis-point rate hike in March after Powell’s comments, with money market futures final pricing in more than 70% probability of such a move, according to CME Group. That was up from about 31% on Monday. (NASDAQ:)Fedwatch Tool.
While many investors worried that the Fed would consider higher rates for longer than previously expected, “hearing it directly from Powell is a little different to guessing it from the data,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. Said.
“Investors need to recalibrate their willingness to invest with this new paradigm from a risk-reward perspective,” said Adam Sirhan, chief executive of 50 Park Investments, based in Orlando, Florida. “There is a feeling that the Fed is going to err on the side of being more aggressive.”
Graphic: Odds rise for big Fed rate hike in March
The Dow Jones Industrial Average fell 574.98 points, or 1.72%, to 32,856.46; The S&P 500 closed at 3,986.37, down 62.05 points, or 1.53%; And the Nasdaq Composite fell 145.40 points, or 1.25%, to 11,530.33.
All 11 major S&P sectors closed lower, led by economically sensitive financials, which dropped 2.5%. The Consumer Staples Index was the lowest loser at 0.97%.
Powell, who will testify again Wednesday before the Financial Services Committee of the House of Representatives, also said the Fed would not consider changing its 2% inflation target and that the job market does not suggest an economic recession is imminent.
Data expected to influence the Fed’s rate hike path will include closely watched non-farm payrolls additions for February on Friday. Economists polled by Reuters are expecting an increase of 200,000 jobs compared to 517,000 jobs reported in January.
While traders were betting in favor of a 50 basis point rate hike this month, Scott Ladner, chief investment officer at Horizon Investments, said the size of the hike would depend on upcoming payroll data and inflation numbers.
But John Lynch, chief investment officer at Comerica (NYSE:) Wealth Management, argued that with jobs and consumption showing strength so far, investors should have expected a more dovish tone from Powell.
Meanwhile, the yield on two-year Treasury notes, which best reflects short-term rate expectations, approached 5% for the first time since July 2007. [US/]
Rising bond yields weigh on equity valuations, especially of growth and technology stocks, as higher rates reduce the value of future cash flows.
Big individual stock moves include a 14.5% drop for Rivian Automotive after the electric automaker unveiled plans to sell $1.3 billion worth of bonds.
Dick’s Sporting Goods (NYSE: ) soared 11% after the retailer reported annual earnings that topped Wall Street’s estimates and more than doubled its quarterly dividend.
Shares of Tesla (NASDAQ:) Inc closed down 3% after CEO Elon Musk told an investor conference that he saw a clear path to produce a smaller vehicle at half the production cost of the Model 3.
shorting issuances compared to advances on the NYSE by a 4.00-to-1 ratio; On the Nasdaq, a 2.21-to-1 ratio favored declines.
The S&P 500 posted 10 new 52-week highs and nine new lows; The Nasdaq Composite recorded 55 new highs and 146 new lows.
11.17 billion shares were exchanged on the US exchanges as against the average of 10.98 billion of the last 20 sessions.