Sell-off intensifies after Powell's inflation remarks, Dow drops 550 points and Nasdaq falls 2.5%

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U.S. stocks fell for a third day after Federal Reserve Chair Jerome Powell failed to reassure investors that the central bank would keep surging bond yields and inflation expectations in check.

The S&P 500 last traded down 1.7%, wiping out earlier gains, while the Dow Jones Industrial Average slid 468 points. The Nasdaq Composite fell more than 2.4% and turned negative on the year as growth stocks came under pressure amid rising rates. Apple slipped more than 1.7%, while Tesla dropped 5.7%.

The Nasdaq also fell into correction territory, down more than 10% from its recent high on an intraday basis.

Powell said the economic reopening could "create some upward pressure on prices." Powell did acknowledge the rapid rise in rates recently caught his attention, but said the Fed would need to see a broader increase across the rate spectrum before considering any action, he said during the Wall Street Journal Jobs Summit Thursday.

The Fed chief reiterated that the central bank would be "patient" before changing policy even as it saw inflation pick up in what it expects would be a transitory fashion. Powell added price increases above the Fed's 2% target for a couple quarters or more would not cause consumers' long-term inflation expectations to materially change.

Treasury yields, which have been keeping investors on edge in recent weeks, rose to 1.53% after Powell's remarks. Last week, the benchmark 10-year yield soared to a high of 1.6% in a sudden move that sparked a big sell-off in stocks. Yields then generally eased back down this week before rising back above 1.5% Thursday on Powell's comments.

Yields increased as some investors may have been disappointed that Powell didn't make a strong hint of any changes in asset purchases by the Fed to contain the rapid increase in rates seen lately. Expectations were growing the Fed might implement an "Operation Twist" operation like it has done in the past where it sells short-term bills and buys longer-duration bonds.

"This was a minor negative as he failed to provide the type of reassuring comments investors were hoping for," Adam Crisafulli, founder of Vital Knowledge, said in a note. "He was vague about what actions specifically would be taken if the Fed felt yields were rising to excessive levels (he was given a few opportunities to endorse a change in QE duration but never did)."

Gold fell 1% amid the Powell comments.

The volatility came even after a better-than-expected reading on weekly jobless claims. First-time filings for unemployment insurance in the week ended Feb. 27 totaled 745,000, a touch below the Dow Jones estimate of 750,000, the Labor Department reported Thursday.

"We're back to good news (for the economy) is bad news (for the market) and as interest rates move higher on expectations of better economic growth it has been hurting the stock market," Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said in a note.

Stocks posted heavy losses Wednesday led by tech as rising bond yields raised concerns about higher inflation and market valuations. The Nasdaq Composite has fallen 3.7% this week, on track to post its third straight negative week — the longest weekly losing streak since September.

Some believe additional stimulus measures could inject optimism into the market. The Senate is currently debating the $1.9 trillion relief package passed by the House on Saturday. President Joe Biden has backed a plan to cut the income caps for Americans to receive stimulus checks.

"Our macro team sees the economy as spring-loaded given the vaccinations and additional stimulus," Keith Lerner, Truist chief market strategist, wrote in a note to clients. "The ability and desire of the consumer to spend on services and experiences should lead to the best economic growth we have seen in over 35 years."

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