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Dow tumbles 950 points, Nasdaq drops 3.8% after Powell warns of pain to households in inflation battle


Losses in the U.S. stock market were deepening heading toward the closing bell, after Federal Reserve Jerome Powell said the central bank will continue its battle against inflation “until the job is done” of getting the cost of living back to its 2% target.

See: Fed’s Powell, in blunt remarks at Jackson Hole, says bringing down inflation will cause pain to households and businesses

How are stocks trading?

The Dow Jones Industrial Average

plunged almost 970 points, or 2.9%, to 32,316.

The S&P 500

dropped almost 132 points, or 3.2%, to about 4,065.

The Nasdaq Composite

tumbled almost 474 points, or 3.8%, to 12,165.

For the week, the Dow is heading for a drop of 4%, while the S&P 500 is on track to slide 3.8% and Nasdaq is on pace to lose 4.3%, FactSet data show, at last check.

What’s driving the market?

U.S. stocks were falling sharply Friday, with losses led by the technology-heavy Nasdaq Composite, after the Federal Reserve Chair Jerome Powell reiterated his resolve to bring soaring inflation under control through higher interest rates.

In remarks that seemed even more hawkish than many investors anticipated, Powell tried to dispel any hopes for a less-aggressive monetary policy stance by insisting that the central bank will persist in its inflation fight, even if that means causing some near-term economic pain for American families.

“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”

As U.S. stocks fell early Friday afternoon, the S&P 500’s information-technology

and consumer-discretionary sectors

seeing the biggest losses, FactSet data show, at last check. All three areas were down more than 3%, as growth stocks suffered more than value.

“It feels like investors have literally been at the beach all summer and forgetting about the problems that exist economically, said Ryan Belanger, founder and managing principal at Claro Advisors, in a phone interview Friday. “This morning, Chair Powell’s remarks just kind of refocused the lens here.”

Jake Jolly,  senior investment strategist at BNY Mellon Investment Management, said Powell’s remarks solidified his stay-tough stance.

“The market was pretty clearly set up for a hawkish ‘sticking to the script’ type of speech and the initial impression is that was what Chair Powell delivered — and he did in in less than 10 minutes,” Jolly said. “The key takeaway is he closed the door on this idea that there is going to be a short-term pivot on Fed policy.”

Read: How stocks perform as central bankers gather each year at Jackson Hole

As the selloff accelerated, Wall Street’s “fear gauge,” the CBOE Volatility Index

rose to more than 25, according to FactSet data, at last check. That compares with a 200-day moving average of about 24.7, FactSet data show.

In the bond market, yields on the 10-year and two-year Treasury notes rose slightly Friday, with the spread between them in inverted territory.

Ahead of Powell’s remarks, a batch of fresh economic data was released, including a reading on the Fed’s preferred inflation gauge, the personal-consumption-expenditures index. Headline PCE dropped 0.1% for July and to 6.3% from 6.8% annually. Core PCE, which excludes food and energy prices and is closely watched by Fed policy makers, rose 0.1% on a one-month basis but decelerated by a slightly bigger-than-expected amount to a 4.6% year-over-year rate, from 4.8%.

Read: Inflation falls in July for the first time in 20 months, key gauge shows

Personal incomes climbed 0.2% in July, while consumer spending rose 0.1%, below forecast. The U.S. trade in goods deficit sank 9.7% in July, while inventories rose.

As Powell spoke, investors also received an update from the University of Michigan’s survey of consumer sentiment, which showed that consumers’ outlook on the economy improved in August, while medium- and long-term inflation expectations continued to moderate.

“I’d chalk that up to the fact that the price of a gallon of gasoline has declined to under $4 a gallon,” Wayne Wicker, chief investment officer at MissionSquare Retirement, said of the improved sentiment in a phone interview Friday. “Consumer psychology can be impacted pretty significantly by how much it’s going to cost them to fill up their car.”

Which companies are in focus?

Electronics Arts Inc.

shares rose 3.7%, even after reports denied earlier rumors about a potential deal with Inc.

Shares of Dell Technologies Inc.

fell almost 14% after executives said the end of the pandemic-driven PC sales boom appeared in the second quarter. Revenue fell short of analysts expectations.

Gap Inc.

shed 1.7%, erasing earlier gains that had followed an earnings report that slightly beat Wall Street expectations.

Meta Platforms Inc.

was down around 4% as mega-cap ‘FAANG’ names declined following Powell’s hawkish remarks. Amazon dropped more than 4%, while Apple Inc.

was fell slightly more than 3% and Netflix Inc.

slid 4.2%.

How are other assets faring ?

The yield on the 10-year Treasury note

edged up 1.1 basis point to 3.034%, while the two-year Treasury yield

rose 1.9 basis points to 3.391%.

The ICE Dollar Index

was up 0.3%.

Crude prices

ended higher, with West Texas Intermediate crude for October delivery

edging up 0.6% to settle at $93.06 a barrel. For the week, front-month oil prices climbed 2.9%, according to Dow Jones Market Data.

Gold futures GC00 ended lower, with gold for December delivery

falling 1.2% to settle at $1,749.80 an ounce. For the week, the most-active contract declined 0.7%, according to Dow Jones Market Data.

Bitcoin BTCUSD fell 4.5% to $20,670.

In European equities, the STOXX Europe 600 Index

closed 1.7% lower Friday for a weekly drop of 2.6%, while the FTSE 100 Index

fell 0.7% Friday, bringing its weekly decline to 1.6%.

In Asia, Japan’s NIKKEI 225 Index

ended 0.6% higher Friday, paring its loss for the week to 1%. China’s Shanghai Composite Index

closed 0.3% lower Friday for a weekly decline of 0.7%. Hong Kong’s Hang Seng Index

rose 1% Friday for a weekly gain of 2%.

Hear from Carl Icahn at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The legendary trader will reveal his view on this year’s wild market ride.

–Barbara Kollmeyer contributed to this report.

Market Extra: The Fed isn’t pivoting. Why were stock investors the last to know?

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