S&P 500 Falls, Yields Rise After Powell’s Comments
At a virtual meeting of the Federal Reserve on Thursday, Chairman Jerome Powell delivered a speech, “Monetary Policy Framework Review.” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, called the speech, which centered on inflation, “profoundly consequential” in a statement to CNBC.
Indeed, as a result of his remarks, the Nasdaq composite lost all its gains for the year, dropping 2.1% percent to hit 12,723.47 points. The S&P 500 fell to 3,768.47, a drop of more than 51 points, and the Dow is now back in the 30,000s, losing nearly 346 points, or 1.1%, to close at 30,924.14.
Nine out of 11 of the S&P 500’s sectors fell, with stocks that The Wall Street Journal deemed “tech darlings,” taking the biggest hit. For instance, Tesla fell nearly 5% to $621.44, a 30-day low, and ARK Innovation ETF dropped 5.3% to reach $118.43.
Interest Rates to Remain Near Zero, Fed Says
Powell also stated Thursday that the central bank would be “patient” to keep interest rates near zero, according to Yahoo! Finance. Powell also shared this sentiment in late December 2020, when the Fed said in a press release that it would keep short-term interest rates near zero through at least 2023.
However, as COVID-19 vaccines gain widespread distribution, additional stimulus checks put more money into Americans’ hands and the economy rebounds as pandemic lockdowns and limitations lift, the Fed could be forced to raise interest rates sooner than that to slow inflation, The Wall Street Journal reports.
Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said, “There’s a general feeling that interest rates are likely to go higher.” Higher interest rates could be bad for the stock market, and in particular, tech stocks that have led the pack for the past year, The Wall Street Journal reports.
Yields Get a Boost
Yields on 10-year U.S. Treasury notes jumped to their highest point since Feb. 19, 2020, seeing a 1.547% increase as a result of a selloff in U.S. sovereign debt. Stock prices typically drop as yields increase, and Powell’s remarks, coupled with comments about the unemployment rate of 6.3% and fears of rising interest rates, may have accelerated the decline.
In addition, high yields alleviate what investors call the TINA trade, or the feeling that “There Is No Alternative to Stocks,” The Wall Street Journal says.
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