around 31% on Monday, according to CME Group's FedWatch tool. The idea of higher rates for longer is a "headwind" and "hearing it directly from Powell is a little different to inferring it from the data," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
"From a risk-rewards standpoint investors have to recalculate their desire to be invested with this new paradigm," said Adam Sarhan, chief executive of 50 Park Investments, based in Orlando, Florida. "It's the realization the Fed is going to err on the side of being more hawkish."
According to preliminary data, the S&P 500 lost 61.93 points, or 1.53%, to end at 3,986.71 points, while the Nasdaq Composite lost 144.33 points, or 1.24%, to 11,531.40. The Dow Jones Industrial Average fell 573.13 points, or 1.71%, to 32,858.31. Powell, who will testify again on Wednesday before the House of Representatives Financial Services Committee, also added that the Fed would not consider changing its 2% inflation target and the job market does not suggest an economic downturn was close. Data influencing the Fed's rate hiking path includes Friday's non-farm payroll numbers. Economists polled by Reuters are expecting an increase of 200,000 jobs in February, compared with the much stronger-than-expected 517,000 jobs reported in January. While traders were flipping bets in favor of a 50 basis point rate hike this month, Scott Ladner, chief investment officer at Horizon Investments, said the size of the hike depends on the upcoming payrolls data and inflation numbers.
But John Lynch, chief investment officer for Comerica Wealth
Management, argued that with employment and consumption showing
strength so far, investors should have been expecting Powell's
more hawkish tone.
Meanwhile, the yield on two-year Treasury notes ,
which best reflects short-term rate expectations, hit 5% for the
first time since July 2007. Rising bond yields tend to weigh on equity valuations,
particularly those of growth and technology stocks, as higher
rates reduce the value of future cash flows.
Big individual stock moves included a sharp decline for
Rivian Automotive after the electric automaker unveiled
plans to sell bonds worth $1.3 billion.
Dick's Sporting Goods rallied after the retailer
forecast annual earnings above Wall Street estimates and more
than doubled its quarterly dividend.
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Odds surge for larger Fed rate hike in March Odds surge for
larger Fed rate hike in March ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Sinéad Carew in New York, Sruthi Shankar and
Bansari Mayur Kamdar in Bengaluru, graphic by Noel Randewich in
San Francisco, additional reporting by Ankika Biswas by Shristi
Achar A
Editing by Vinay Dwivedi and Richard Chang)
