Wall Street ends significantly lower as Powell’s speech emphasizes tough stance on interest rate

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, US, August 15, 2022. REUTERS/Brendan McDermid/File Photo

(Reuters) – Wall Street slumped on Friday to close lower as investors keen on a path to more modest interest rates disappointed Federal Reserve Chairman Jerome Powell in a sign that the central bank would continue to raise rates to tame inflation.

The Nasdaq led the declines among the three US indexes, dragged down by high-growth technology stocks that retreated after rallying the previous day in anticipation of Powell’s scheduled speech at the Jackson Hole Central Banking Conference in Wyoming.

Powell said at the event that the US economy will need tight monetary policy “for some time” before inflation is under control. This, he added, means slower growth, a weaker job market and “some pain” for families and businesses. Read more

Investors knew more rate hikes were coming, and were split between whether the Fed would raise 75 basis points and 50 basis points next month.

However, recent data highlighting continued strength in the labor market, offsetting two consecutive quarters of negative economic growth, has led some to expect a more moderate pace of increases to be imminent.

“The decline comes from the idea that it’s not about the pace going forward and how they tighten financial conditions, it’s about how long we stay in this restrictive political position,” said Garrett Melson, portfolio strategist at Natixis Investment Managers.

“That’s the nuance they’re trying to push forward, and Powell was probably more clear that day. But if you’ve listened to other Fed speakers in the past two weeks, it’s the same message.”

All 11 major sectors of the S&P 500 were lower, with IT (.SPLRCT)Telecommunications Services (.SPLRCL) and consumer appreciation (.SPLRCD) Indexes are among the steepest declines.

According to preliminary data, the S&P 500 . index (.SPX) It lost 140.83 points, or 3.35%, to close at 4058.29 points, while the Nasdaq Composite (nineteenth) It lost 496.39 points, or 3.93%, to 12,142.88 points. Dow Jones Industrial Average (.DJI) It fell 1003.74 points, or 3.01%, to 32,288.04 points.

In light of massive growth and technology stocks, US two-year Treasury yields briefly jumped to their highest since October 2007 before settling near two-month highs.

High-growth and technology stocks fell.

After Nvidia Corp shares topped the gainers in the previous session (NVDA.O) Amazon.com stock fell. Meanwhile, Alphabet Inc (GOOGL.O)Meta Platforms Inc (META.O)and Block Inc (SQ.N) also dropped.

US stock indices have fallen since the beginning of the year as investors anticipate higher interest rates and a slowing economy.

But they have rebounded strongly since June, with the S&P 500 recouping nearly half of its losses for the year on stronger-than-expected quarterly earnings and hopes that decades-high inflation will peak.

Data earlier showed consumer spending barely rose in July, but inflation eased significantly, which could give the Federal Reserve room to pare steep rate increases. Read more

Dell Technologies backed down as it joined rivals in anticipating a slowdown as inflation and bleak economic prospects push consumers and businesses to tighten their financial constraints. Read more

Affirm Holdings Inc (AFRM.O) It fell after the buy-now-pay-later lender forecast full-year revenue below Wall Street estimates, underscoring the broader downturn in the fortunes of the once-flying fintech sector.

Additional reporting by Bansari Mayor Kamdar, Devik Jain, Anisha Sircar and Sruthi Shankar in Bengaluru and David French in New York; Editing by Magu Samuel, Aditya Soni and Grant McCall

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