S&P 500 Closes 1.3% Lower After Powell Comments

By Caitlin Ostroff and Gunjan Banerji

A dayslong selloff in the stock market intensified and Treasury yields jumped Thursday as the latest comments from Federal Reserve Chairman Jerome Powell did little to assuage fears about the recent rise in yields.

At The Wall Street Journal Jobs Summit, Mr. Powell emphasized the economy is far from reaching full employment. He stopped short of indicating that the Fed would buy more long-term Treasurys each month as an effort to contain yields, which some investors thought was possible. Stocks turned lower after his comments, with losses accelerating in the afternoon.

The S&P 500 declined 51.25 points, or 1.3%, to 3768.47, the third consecutive session of declines. The Nasdaq Composite fell 274.28 points, or 2.1%, to 12723.47 and teetered on the edge of a correction -- a drop of 10% from its recent high. The tech-heavy gauge recorded its biggest three-day percentage decline since September and has now given up its gains for the year. The Dow Jones Industrial Average lost 345.95 points, or 1.1%, to 30924.14.

The declines were particularly steep among tech darlings and favorites of momentum investors. Tesla fell $31.76, or 4.9%, to $621.44, while ARK Innovation ETF dropped $6.68, or 5.3%, to $118.43. The losses were broad, with nine out of 11 of the S&P 500's sectors falling.

"The uncertain market got an uncertain message," said Michael Farr, president of Farr, Miller & Washington. "It was a reiteration of a wait-and-see approach," he said of Mr. Powell's comments.

The S&P 500's energy sector was a bright spot, gaining 2.5%. Oil prices rose as OPEC and a Russia-led coalition of oil producers kept most of their production cuts in place.

Meanwhile, the yield on the 10-year U.S. Treasury note jumped to 1.547%, the highest close since Feb. 19, 2020, before the pandemic tipped the U.S. economy into a recession. That level marks a steep climb from early January, when it was as low as 0.915%. Yields rise when bond prices fall.

Thursday marked the latest concurrent move for stocks and bonds. A selloff in U.S. sovereign debt has lifted Treasury yields, curbing investors' appetite for the technology stocks that had soared in a low-yield environment. Some investors have also questioned whether the so-called TINA trade, or the feeling that There is No Alternative to stocks, will end as Treasury yields jump, dealing a blow to a tactic that had propelled stocks higher for much of last year.

"There's a general feeling that interest rates are likely to go higher," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. That's "particularly bad for the types of stocks that led the market higher for the past year."

Central bank officials have previously said they would keep monetary policy loose until the economy is stronger, and that they view the rise in bond yields as a signal that investors are optimistic about the U.S. economic recovery.

Some money managers are betting that additional fiscal stimulus in the U.S. will boost inflation and cause the Fed to raise interest rates sooner than they had expected. That has led to a jump in real yields, or the returns on bonds after adjusting for inflation expectations.

A key measure of investors' inflation expectations also surged recently. Five-year breakevens -- which reflect the expected pace of price increases over the five-year period that begins five years from now -- climbed above 2.5% for the first time in 13 years before closing at 2.487% Wednesday, according to Deutsche Bank.

Yields on Treasury inflation-protected securities, or TIPS, which are a proxy for the real yields, have also shot upward.

Expectations for U.S. economic growth have been bolstered by a proposed $1.9 trillion Covid-19 relief package. Senate Democrats agreed Wednesday to narrow eligibility for some of the direct payments that are part of the bill, a concession to centrists whose support is needed to pass it.

Overseas, the pan-continental Stoxx Europe 600 fell 0.4%.

Most major Asian markets fell in a technology-led selloff that mirrored Wednesday's trading in the U.S.

Markets were weighed down by uncertainty over the pace of global economic recovery, as well as concerns that quickening inflation could eventually lead to higher interest rates, according to Justin Tang, the head of Asian research at United First Partners in Singapore.

"On one hand, you want the economy to grow, but the massive cash in the economy raises the boogeyman of inflation," he said. "I'm not sure if the economy can actually take higher interest rates at the moment. We are recovering, but I'm pretty sure we're not out of the woods yet," he added.

Mr. Tang said the recent pullback was reminiscent of 2018, when the tech sector sold off as bond yields rose, though he noted that episode quickly eased.

--Joanne Chiu contributed to this article.

Write to Caitlin Ostroff at [e-mail] and Gunjan Banerji at [e-mail]

(END) Dow Jones Newswires

03-04-21 1702ET