Stocks tumble as Fed hawkishness fears push yields higher, tech leads losses

Investors reacted to Fed projections and remarks from new Chair Kevin Warsh?expectations of possible rate hikes lifted Treasury yields, sank tech giants and overshadowed mixed global markets and steadier oil prices.

U.S. stocks slumped Wednesday on speculation the Federal Reserve may hike interest rates this year to keep a lid on inflation. Higher rates can tap the brakes on accelerating prices at cash registers but they also slow the economy and hurt prices for investments.

The S&P 500 dropped 1.2% and erased an earlier, modest gain after the Fed released projections showing that nine of 18 policymakers foresee at least one increase to its main interest rate this year. The Dow Jones Industrial Average went from a gain of 280 points in the morning to a drop of 507 points (1%) while the Nasdaq composite sank 1.3%.

Oil prices were steadier Wednesday following slides earlier in the week on optimism about the tentative U.S.-Iran deal to get the global flow of oil going again. Iran is set to take steps to reopen the Strait of Hormuz once the deal is signed, which would allow oil tankers to deliver crude from the Persian Gulf again and hopefully take pressure off inflation. The price for a barrel of Brent crude oil rose 0.7% to $79.55. It?s still above its roughly $70 price from before the war, but it?s well below its $100-plus price from a few weeks ago.

In his first press conference as Fed chair, Kevin Warsh declined to give a forecast for where the federal funds rate may end 2026 and announced he?s considering revamping how the Fed communicates with markets, households and businesses. One immediate change was ending ?forward guidance? ? removing hints in Fed statements about future rate moves ? so Wall Street reacts to incoming data on inflation, jobs and other indicators based on how they affect asset prices rather than on expectations of Fed responses.

Warsh also said the Fed could alter its quarterly projections showing where officials expect interest rates, the economy and inflation to head. For now, Wall Street reacted uneasily to the latest projections, which Warsh said lacked strong conviction, while the central bank held the federal funds rate steady at this meeting, as it has so far this year. A report released Wednesday said retailers across the country saw their revenue grow at a faster pace in May than economists expected, offering hope that solid spending by consumers can support the economy but high inflation has also made U.S. shoppers feel more discouraged about their finances.

Drops of 3.8% for Microsoft, 3.5% for Amazon and 1.3% for Nvidia were three of the heaviest weights on the S&P 500. They helped overshadow a jump of 14.8% for La-Z-Boy, which reported stronger profit and revenue for the latest quarter than analysts expected. It benefited from revenue made at newly opened stores, though Chief Financial Officer Taylor Luebke said the company continues to have ?a measured view? of the broad sales environment.

In stock markets abroad, indexes were mixed across Europe and Asia. South Korea?s Kospi jumped 1.6% and Hong Kong?s Hang Seng fell 0.7% for two of the world?s bigger moves.

In the bond market, Treasury yields climbed. The yield on the 10-year Treasury, which influences rates for mortgages and other loans going to U.S. households and businesses, rose to 4.49% from 4.43% late Tuesday. The two-year Treasury yield, which more closely tracks expectations for Fed action, jumped to 4.21% from 4.05%. High yields in bond markets worldwide caused by worries about inflation have already been threatening to slow economies and undercut prices for all kinds of investments.

Powered by Capital Market - Live News