S&P 500 Falls, Yields Rise After Powell’s Comments

Mandatory Credit: Photo by Jim Lo Scalzo/AP/Shutterstock (11089768u)Federal Reserve Chair Jerome Powell testifies before a House Financial Services Committee hearing on Capitol Hill in WashingtonHouse Banking, Washington, United States - 02 Dec 2020.
Jim Lo Scalzo/AP/Shutterstock / Jim Lo Scalzo/AP/Shutterstock

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.

See: Fed Chair Powell Says Rates Won’t Rise — Yet
Find: Economy Explained — What Is Inflation and What Does It Mean When It Goes Up or Down?

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.

See: Bank of America Issues Warning About Potential Stock Market Bubble
Find: Economy Explained — Understanding Interest Rates and How They Affect You and the US Market

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.

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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.

See: Fed Chair Powell Testifies Before Congress — ‘Economy Will Depend on the Course of the Virus’
Find: Tech Stocks That Are Worth the Investment Right Now

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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Powell discussed the rising yields at The Wall Street Journal Jobs Summit, but he did not say the Fed would purchase more long-term Treasuries to contain yields.

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About the Author

Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.

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