By Caitlin Ostroff
U.S. stocks wobbled again Thursday as investors digested
comments from Federal Reserve Chairman Jerome Powell about the
outlook for inflation and the central bank's views on rising bond
The S&P 500 slipped 0.6% after two consecutive days of
declines. The Nasdaq Composite edged lower 1.3%. The Dow Jones
Industrial Average dropped 100 points, or 0.3%.
Fresh data showed that 745,000 Americans applied for first-time
unemployment benefits in the week ended Saturday, up from 736,000
the week prior. Economists surveyed by The Wall Street Journal had
expected 750,000 jobless claims.
The stock market is continuing to reflect and react to moves in
government 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.
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
Investors say they are hoping Mr. Powell will answer questions
on how he views the jump in yields when he speaks at The Wall
Street Journal Jobs Summit at 12:05 p.m. ET. Central bank officials
have previously said that they will 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.
"Powell's comments today are going to be really important," said
Hugh Gimber, a strategist at J.P. Morgan Asset Management.
"Clearly, what we're seeing over the last few weeks is equities
being disrupted by the pace of the rise in real yields, and that
puts the Fed in a tough space."
The Fed chair's comments will also offer one of the last
opportunities for markets to hear from key policy makers before a
blackout period begins ahead of the next monetary policy review in
mid-March. "This is his real opportunity, prior to the next Fed
meeting, to give investors clarity on how the Fed is viewing the
bond market," he added.
The yield on the 10-year U.S. Treasury note ticked up to 1.471%,
hovering around its highest levels of the year. That level marks a
steep climb from early January, when it was as low as 0.915%.
Yields rise when bond prices fall.
A key measure of investors' inflation expectations also surged
higher yesterday. 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
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.
"You basically have fiscal stimulus feed through to consumption,
which means earnings can go up and that will support equity
markets," said Esty Dwek, head of global market strategy at Natixis
She said she expects sectors like banks that would benefit from
the economic reopening to perform well as investors exit richly
valued technology stocks. "The headline numbers of the indexes
sometimes mask that it has been more of a rotation in equities
rather than out of equities," she said.
The stimulus package should also increase support for unemployed
people, which will bolster consumer spending and the economic
recovery, Ms. Dwek said.
In energy markets, Brent-crude futures, the benchmark overseas,
rose 0.3% to $64.29 a barrel. Saudi Arabia and Russia are
discussing a proposal to bring back a combined one million barrels
a day of oil to global markets, The Wall Street Journal reported.
The two sides are preparing to hammer out a deal as an alliance of
some of the world's biggest producers meets on Thursday.
Overseas, the pan-continental Stoxx Europe 600 fell 0.2%.
Most major Asian markets fell by the close of trading in a
technology-led selloff that mirrored Wednesday's trading in the
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
"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 and Gunjan Banerji contributed to this
Write to Caitlin Ostroff at firstname.lastname@example.org
(END) Dow Jones Newswires
March 04, 2021 12:49 ET (17:49 GMT)
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