Stocks Turn Lower After Powell’s Comments

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A dayslong selloff in the stock market intensified and Treasury yields rose after Federal Reserve Chairman

Jerome Powell

reiterated his intention of keeping the central bank’s easy-money policies in place.

Mr. Powell answered questions on how he views the jump in yields at The Wall Street Journal Jobs Summit and emphasized that the economy is far from reaching full employment. But some analysts and investors said that Mr. Powell’s responses, which closely adhered to his previous comments, did little to assuage fears about the recent rise in bond yields.

The S&P 500 declined 0.9% after two consecutive days of declines. The Nasdaq Composite fell 1.7% and teetered on the edge of a correction—a drop of 10% from its recent high. The tech-heavy gauge is on track to fall more than 1% for the third consecutive session for the first time since September 2020. The Dow Jones Industrial Average lost about 300 points, or 1%.

Taking questions at the WSJ Jobs Summit, Jerome Powell explains his expectations for a return to maximum employment and how the labor force has changed since the pandemic started. Photo: Al Drago/Getty Images

A rout in the stock market deepened after his comments, exacerbating losses for tech darlings and favorites for momentum investors, like Tesla, which fell 6.7% on Thursday. ARK Innovation ETF dropped 6%. But the losses were broad, with 10 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.

Meanwhile, the yield on the 10-year U.S. Treasury note jumped to 1.555%, on track for the highest closing level in at least a year. That level marks a steep climb from early January, when it was as low as 0.915%. Yields rise when bond prices fall.

The stock market has been taking cues from the government bond market, and Thursday marked the latest concurrent move for stocks and bonds. A recent 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.

“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. The 10-year TIPS yield rose to minus 0.741% Thursday, from minus 1.089% at the end of last year, according to Tradeweb. It briefly closed as high as minus 0.635% at the end of February, when there was a wave of selling in the government bond market.

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.

A trader worked on the floor of the New York Stock Exchange on Wednesday.



Photo:

Courtney Crow/Associated Press

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.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Gunjan Banerji at Gunjan.Banerji@wsj.com

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