(Bloomberg) — Stocks fell and Treasury yields surged as Jerome Powell reinforced that the Federal Reserve is committed to ensuring high inflation doesn’t become entrenched, while adding that he doesn’t rule out a hike every meeting.
The S&P 500 extended losses, the dollar pushed higher while 10-year yields topped 1.8%. The Fed chief said the inflation situation is “slightly worse” than it was at the time of the December meeting, adding that he’s inclined to boost his forecast by a “few tenths.” Powell noted it isn’t possible to predict with confidence what the appropriate policy path will be. In its statement, the Fed signaled its first rate hike since 2018 will happen “soon,” while saying it expects a balance-sheet reduction to start afterward.
“The stock market is especially vulnerable to higher rates and the removal of the tailwind that the Fed’s asset purchases have provided for the past two years,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “We believe the economy will stay out of recession and the bull market in stocks will continue this year, but we are concerned that the volatility we have already witnessed this month will increase in the months ahead and would exercises caution in the near term.”
Read: Powell Backs March Liftoff, Won’t Rule Out Hike Every Meeting
Other corporate highlights:
- Software behemoth Microsoft Corp. surged after saying its cloud-computing business has potential to drive growth, while Texas Instruments Inc. jumped as an upbeat outlook signaled demand for electronic components remains high. Chipmaker Intel Corp. and electric-vehicle heavyweight Tesla Inc. gained before their results.
- Planemaker Boeing Co. recorded $5.5 billion in total charges and costs to cover higher factory and customer expenses for the 787 Dreamliner.
- AT&T Inc. posted earnings that topped estimates, giving investors less reason to fret over lavish free-phone promotions.
- Nasdaq Inc., operator of the technology-heavy stock exchange, posted record revenue that beat analysts’ expectations.
- Mattel Inc. won back the license to produce toys based on Walt Disney Co.’s princesses and the “Frozen” movies.
Read: Hedge Funds Face New SEC Disclosures as Gensler Cracks Down
The latest economic readings showed that sales of new U.S. homes climbed in December to a nine-month high. Meantime, the merchandise-trade deficit unexpectedly widened to a fresh record as imports continued to rise, outpacing shipments overseas.
On the geopolitical front, the U.S. told its citizens to consider leaving Ukraine now given the continuing tensions with Russia and the “unpredictable” security situation in the Eastern European nation. Russian Foreign Minister Sergei Lavrov said the Kremlin will respond to any “aggressive” action by the U.S. as an ally of President Vladimir Putin proposed shipping weapons to separatists. President Joe Biden said he would consider personally sanctioning Putin if he orders an invasion of Ukraine.
What to watch this week:
- South African Reserve Bank rate decision Thursday.
- U.S. initial jobless claims, durable goods, GDP Thursday.
- Euro zone economic confidence, consumer confidence Friday.
- U.S. consumer income, University of Michigan consumer sentiment Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.7% as of 3:18 p.m. New York time
- The Nasdaq 100 fell 0.5%
- The Dow Jones Industrial Average fell 0.8%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.5% to $1.1241
- The British pound fell 0.4% to $1.3451
- The Japanese yen fell 0.6% to 114.53 per dollar
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 1.84%
- Germany’s 10-year yield was little changed at -0.07%
- Britain’s 10-year yield advanced three basis points to 1.20%
Commodities
- West Texas Intermediate crude rose 1.2% to $86.59 a barrel
- Gold futures fell 2% to $1,818.50 an ounce
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