Stocks fall into the red after Powell inflation comments trigger yield jump

1 month ago 10

U.S. stocks swung wildly on Thursday following back-to-back losses on Wall Street.

The S&P 500 last traded up 0.3% in the chopping session, while the Dow Jones Industrial Average gained 90 points. The Nasdaq Composite traded flat. At its low of the day, the tech-heavy benchmark fell more than 1% and turned negative on the year.

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.

Federal Reserve Chair Jerome Powell said the economic reopening could "create some upward pressure on prices." But Powell noted that he expects the inflation gain to be transitory as one-time effects like stimulus pass, he said during the Wall Street Journal Jobs Summit Thursday.

Powell 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 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.

Treasury yields, which have been keeping investors on edge in recent weeks, rose slightly to 1.5% after Powell's comments. 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.

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.

Additional stimulus measures could inject some 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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