Powell Testimony Contributes To Sell-Off On Wall Street

With remarks by Federal Reserve Chair Jerome Powell renewing concerns about the outlook for interest rates, stocks moved sharply lower during trading on Tuesday. The major averages all showed significant moves to the downside after ending Monday’s trading narrowly mixed.

The major averages climbed off their worst levels late in the session but still posted steep losses. The Dow plunged 574.98 points or 1.7 percent at 32,856.46, the Nasdaq tumbled 145.40 points or 1.3 percent to 11,530.33 and the S&P 500 dove 62.05 points or 1.5 percent to 3,986.37.

The sell-off on Wall Street reflected a negative reaction to Powell’s highly anticipated semiannual monetary policy testimony before the Senate Banking Committee.

Citing stubbornly elevated inflation and stronger than expected economic data, Powell told lawmakers the “ultimate level of interest rates is likely to be higher than previously anticipated.”

Powell also said the Fed would be prepared to reaccelerate the pace of rate hikes if the totality of incoming data were to indicate that faster tightening is warranted.

Additionally, the Fed chief reiterated the central bank will likely need to maintain a restrictive stance of monetary policy for “some time” in order to restore price stability.

“The historical record cautions strongly against prematurely loosening policy,” Powell said. “We will stay the course until the job is done.”

The Fed’s next monetary policy meeting is scheduled for March 21-22, with CME Group’s FedWatch Tool currently indicating a 70.5 percent chance of 50 basis point rate increase and a 29.5 percent chance of 25 basis point rate hike.

“U.S. stocks did not stand a chance after Fed Chair Powell convinced markets that policymakers are comfortable taking this rate hiking campaign much higher,” said Edward Moya, senior market analyst at OANDA.

He added, “Powell is not taking any chances and wants to send home a clear message that the Fed will do whatever it takes to bring down inflation.”

Sector News

Gold stocks turned in some of the worst performances on the day, dragging the NYSE Arca Gold Bugs Index down by 4.0 percent to a nearly four-month closing low.

The sell-off by gold stocks came amid a steep drop by the price of the precious metal, with gold for April delivery plunging $34.60 to $1,820 an ounce.

Substantial weakness was also visible among banking stocks, as reflected by the 3.9 percent nosedive by the KBW Bank Index. The index tumbled to its lowest closing level in well over a month.

Oil service stocks also saw significant weakness amid a sharp decline by the price of crude oil, resulting in a 2.5 percent slump by the Philadelphia Oil Service Index.

Commercial real estate, steel and biotechnology stocks also moved notably lower on the day, while airline stocks were among the few groups to buck the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday. Japan’s Nikkei 225 Index rose by 0.3 percent, while China’s Shanghai Composite Index slumped by 1.1 percent.

Meanwhile, the major European markets all moved to the downside over the course of the session. While the U.K.’s FTSE 100 Index edged down by 0.1 percent, the French CAC 40 Index and the German DAX Index fell by 0.5 percent and 0.6 percent, respectively.

In the bond market, treasuries saw significant volatility before ending the day roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 3.975 percent.

Looking Ahead

Powell’s second day of testimony on Capitol Hill may attract some attention on Wednesday, while traders are also likely to keep an eye on reports on private sector employment and job openings as well as the Fed’s Beige Book.

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