Dow falls more than 1,000 points after Powell speech

Federal Reserve chairman vows to keep pressing the fight against inflation, even at the expense of economic growth | WATCH

Federal Reserve Board Chairman Jerome Powell speaks during a news conference in Washington, DC.

The Dow Jones Industrial Average sank more than 1,000 points on Friday after Federal Reserve Chairman Jerome Powell vowed to keep pressing the fight against inflation, even at the expense of economic growth.

In a highly anticipated speech, Mr. Powell said the Fed must continue raising interest rates and keep them high until inflation is under control. His comments disappointed investors who had hoped inflation had peaked and the Fed would shift from raising rates to lowering them sometime next year.

Friday’s sell-off capped off two consecutive weeks of losses for major stock indexes and largely wiped out the market’s gains since late July. Technology stocks that were flying high earlier this summer took a particular beating, with Amazon.com and Netflix both falling more than 4% for the day.

The Dow shed 1,008.38 points, or 3%, to 32283.40, the blue-chip index’s biggest one-day drop since May.

The S&P 500 fell 141.46 points, or 3.4%, to 4057.66. The tech-focused Nasdaq Composite slid 497.56 points, or 3.9%, to 12141.71. The indexes were little changed ahead of the speech, then steadily declined throughout the session, with losses accelerating into the closing bell.

All three indexes declined more than 4% for the week, following an up-and-down ride in which investors weighed worries over Fed tightening against economic data that pointed to underlying strength in the U.S. economy.

Mr. Powell’s comments at the Fed’s summit in Jackson Hole, Wyo., highlighted how the central bank is preparing to shift from a phase of rapid and large rate increases to potentially one in which it focuses on reaching an interest-rate level that slows hiring, spending and growth, then holds at that level for some time.

“The biggest surprise here is that investors were bracing for Fed Chair Powell to talk tough on inflation, yet are reacting negatively after he did exactly that,” said Michael Arone, chief investment strategist at State Street Global Advisors. “It appears investors were naively hoping for a Powell-pivot, but instead he doubled down on the Fed’s inflation-fighting credibility.” Friday’s stockmarket declines were broad, with all 11 of the S&P 500’s sectors down for the day and only five stocks in the index eking out gains. Tech was the hardest-hit sector as those shares are particularly sensitive to higher rates.

Google parent Alphabet fell more than 5%. HP and chip maker Nvidia both slid about 9%. Dell Technologies fell 14% after the personal-computer maker warned of a slowing PC market.

Travel and leisure-related stocks also came under pressure, with Caesars Entertainment and Carnival both falling more than 5%.

Even with this week’s losses, the S&P 500 is up 11% from its June low. Stocks rallied for much of the summer on hopes that the Fed might ease its inflation-fighting stance, a generally solid corporate earnings season and some upbeat data releases. On Thursday, indexes posted gains after data showed the economy shrank less than previously thought in the second quarter.

Mr. Powell didn’t comment directly on the outlook for the Fed’s coming policy meeting in September but said the next rate decision “will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it will likely become appropriate to slow the pace of increases.” Ahead of the central bank’s next meeting, investors will parse the monthly jobs report, due Sept. 2, for any sign that the tight labour market is easing. They will also get another reading on inflation. The last consumer-price-index report showed inflation pulled back slightly in July from a four-decade high. The Fed has said it wants to see more evidence the economy is cooling before it is ready to say that inflation is indeed coming down.

At the next Fed meeting, officials will likely debate whether interest rates should be raised by 0.5 or 0.75 percentage point. Futures markets indicate that traders are split, with roughly 60% expecting the larger increase and about 40% anticipating the smaller, half-point hike.

“They won’t want to be remembered as the central bank that missed inflation or even spurred inflation higher,” said Brian O’Reilly, head of market strategy at Mediolanum International Funds.

The two-year U.S. Treasury yield, which is closely tied to expectations for the Fed’s benchmark interest rate, spiked after Mr. Powell’s speech and settled at 3.391%, up from 3.372% on Thursday. Bond yields and prices move in opposite directions.

The 10-year yield inched up to 3.034% from Thursday’s 3.023%. That extended the inversion between short-term and long-term yields, a key recession indicator from the bond market.

In a sign that inflation pressures might be easing a bit, fresh data released Friday showed that the core personal-consumption expenditures price index — the Fed’s preferred gauge of inflation — came in slightly below forecasts.

In commodity markets, oil prices climbed as investors balanced expectations of weaker demand with signs that the OPEC+ oil-producers group was considering cutting production at its next meeting. Front-month futures on benchmark Brent crude oil rose 1.7% to settle at $100.99 a barrel.

Bitcoin fell alongside tech stocks and other risky assets. The cryptocurrency slid 4.5% from its Thursday 5pm. ET price to $20,666.66 on Friday, breaking through the $21,000 level that traders had seen as a floor in the past week.

Investors were also parsing data on the U.S. consumer. Household spending rose slightly in July amid strong inflation. Consumer sentiment rose for a second consecutive month in August, recovering slightly from an all-time low in June, according to new data from the University of Michigan.

Overseas, the pan-continental Stoxx Europe 600 fell 1.7%. Indexes in Asia mostly gained, with Japan’s Nikkei 225 closing up 0.6% and Hong Kong’s Hang Seng rising 1%.

The Wall Street Journal