Powell Caution Sparks Market Rout: In a sharp reversal, U.S. stocks ended lower, snapping the Nasdaq and S&P 500’s longest winning streaks in two years. Treasury yields surged following a disappointing 30-year bond auction and comments from Federal Reserve Chair Jerome Powell, who expressed doubt about current interest rates effectively curbing inflation.
Powell’s hawkish viewpoint added pressure on stocks, with the Dow Jones Industrial Average dropping 220.33 points, the S&P 500 losing 35.43 points, and the Nasdaq Composite shedding 128.97 points. These declines, the largest since late October, interrupted a remarkable streak of gains for the S&P 500 and Nasdaq, the longest since November 2021.
Despite a recent rally driven by softening economic data, the monthly payrolls report, and a retreat in U.S. Treasury yields, Powell’s cautionary comments instigated a market slowdown. Traders, initially anticipating the Fed to keep rates steady this year, are now adjusting their expectations, eyeing potential rate cuts in 2024.
Also Read: Market Pause: Powells Verbal Ballet Amidst Oil and Bond Tumbles
Amid this uncertainty, a Labor Department report showed a marginal dip in jobless claims, suggesting a cautious optimism despite signs of a cooling labor market. Notable performers include Walt Disney, surging 6.9% on a quarterly profit beat, and semiconductor firm Arm Holdings, down 5.2% due to a gloomy third-quarter sales forecast.
All major S&P sectors saw declines, with healthcare and consumer discretionary leading the drop. Declining issues outnumbered advances on both the NYSE and Nasdaq, reflecting a widespread market pullback.
The session recorded a mix of new highs and lows for the S&P 500 and Nasdaq, underlining the volatility. Market volume reached 11.36 billion shares, slightly surpassing the 10.97 billion average over the last 20 trading days. The market landscape is in flux, with Powell’s words echoing through Wall Street and reshaping investor expectations.
Our Reader’s Queries
What was Powell’s warning?
Investors who are overly optimistic about rate cuts next year have been cautioned by Chairman Powell, according to Jeffrey Roach, chief economist at LPL Financial. Powell has emphasized that the Fed will remain committed to its mandate and will increase rates if inflation picks up again.
Does Powell call a recession a possibility?
It’s highly likely that a recession could occur within the next year, regardless of the current state of the economy. This possibility should not be taken lightly, as it holds significant weight.
Why did the market go up after Fed meeting?
For weeks, stocks have been on the rise due to the belief that the Fed will stop increasing rates and instead focus on rate cuts in the coming year. After the Fed’s statement, U.S. interest rate futures have increased the likelihood of a rate cut in May to 90%, up from 80% prior to the announcement, as reported by LSEG’s Fedwatch.
Will the Fed cut rates in January 2024?
The Federal Reserve announced at its December meeting that it would no longer raise interest rates and would instead begin making cuts in 2024. This decision caused mortgage rates to drop significantly, and they have remained below 7 percent as of early January. According to McBride, this trend could continue throughout the year.