S&P 500 Closes 1.3% Lower After Powell Comments
March 04 2021 - 4:37PM
Dow Jones News
By Caitlin Ostroff and Gunjan Banerji
A dayslong selloff in the stock market intensified and Treasury
yields rose after Federal Reserve Chairman Jerome Powell reiterated
his intention of keeping the central bank's easy-money policies in
place.
Mr. Powell answered questions on how he views the jump in yields
at The Wall Street Journal Jobs Summit and emphasized that the
economy is far from reaching full employment. But some analysts and
investors said that Mr. Powell's responses, which closely adhered
to his previous comments, did little to assuage fears about the
recent rise in bond yields.
The S&P 500 slid 1.3% after two consecutive days of
declines. The Nasdaq Composite fell 2.1% and narrowly missed
finishing in correction territory -- a drop of 10% from its recent
high. Still, the tech-heavy gauge fell 2.1%, its third consecutive
decline of more than 1%. Such a streak hasn't been seen for the
Nasdaq since last September. The Dow Jones Industrial Average lost
about 347 points, or 1.1%.
A rout in the stock market deepened after his comments,
exacerbating losses for tech darlings and favorites for momentum
investors, like Tesla, which fell 5% on Thursday. ARK Innovation
ETF dropped 6%. But the losses were broad, with nine out of 11 of
the S&P 500's sectors falling.
"The uncertain market got an uncertain message," said Michael
Farr, president of Farr, Miller & Washington. "It was a
reiteration of a wait-and-see approach," he said of Mr. Powell's
comments.
Meanwhile, the yield on the 10-year U.S. Treasury note jumped to
1.555%, on track for the highest closing level in at least a year.
That level marks a steep climb from early January, when it was as
low as 0.915%. Yields rise when bond prices fall.
The stock market has been taking cues from the government bond
market, and Thursday marked the latest concurrent move for stocks
and bonds. A recent selloff in U.S. sovereign debt has lifted
Treasury yields, curbing investors' appetite for the technology
stocks that had soared in a low-yield environment.
"There's a general feeling that interest rates are likely to go
higher," said Chris Zaccarelli, chief investment officer at
Independent Advisor Alliance. That's "particularly bad for the
types of stocks that led the market higher for the past year."
Central bank officials have previously said they would keep
monetary policy loose until the economy is stronger, and that they
view the rise in bond yields as a signal that investors are
optimistic about the U.S. economic recovery.
Some money managers are betting that additional fiscal stimulus
in the U.S. will boost inflation and cause the Fed to raise
interest rates sooner than they had expected. That has led to a
jump in real yields, or the returns on bonds after adjusting for
inflation expectations.
A key measure of investors' inflation expectations also surged
recently. Five-year breakevens -- which reflect the expected pace
of price increases over the five-year period that begins five years
from now -- climbed above 2.5% for the first time in 13 years
before closing at 2.487% Wednesday, according to Deutsche Bank.
Yields on Treasury inflation-protected securities, or TIPS,
which are a proxy for the real yields, have also shot upward. The
10-year TIPS yield rose to minus 0.741% Thursday, from minus 1.089%
at the end of last year, according to Tradeweb. It briefly closed
as high as minus 0.635% at the end of February, when there was a
wave of selling in the government bond market.
Expectations for U.S. economic growth have been bolstered by a
proposed $1.9 trillion Covid-19 relief package. Senate Democrats
agreed Wednesday to narrow eligibility for some of the direct
payments that are part of the bill, a concession to centrists whose
support is needed to pass it.
Overseas, the pan-continental Stoxx Europe 600 fell 0.4%.
Most major Asian markets fell in a technology-led selloff that
mirrored Wednesday's trading in the U.S.
Markets were weighed down by uncertainty over the pace of global
economic recovery, as well as concerns that quickening inflation
could eventually lead to higher interest rates, according to Justin
Tang, the head of Asian research at United First Partners in
Singapore.
"On one hand, you want the economy to grow, but the massive cash
in the economy raises the boogeyman of inflation," he said. "I'm
not sure if the economy can actually take higher interest rates at
the moment. We are recovering, but I'm pretty sure we're not out of
the woods yet," he added.
Mr. Tang said the recent pullback was reminiscent of 2018, when
the tech sector sold off as bond yields rose, though he noted that
episode quickly eased.
--Joanne Chiu contributed to this article.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Gunjan
Banerji at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
March 04, 2021 16:22 ET (21:22 GMT)
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