U.S. Stocks Waver, Dollar Extends Rally on Fed’s Rate Outlook

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Global markets wobbled Thursday, with the U.S. dollar extending its rally and gold prices retreating after Federal Reserve officials signaled their intention to raise interest rates sooner than previously forecast.

The S&P 500 index edged up 0.1%, as the broad U.S. market gauge tries to avoid another down day after closing 0.5% lower Wednesday. The Nasdaq Composite Index was roughly flat. The Dow Jones Industrial Average added 32 points in early trading.

Gold fell over 4% Thursday, the most in over 10 months, to $1,777.80 a troy ounce. The precious metal, which doesn’t offer any income to investors, came under pressure as the prospect of higher rates made yield-bearing investments relatively more attractive.

The WSJ Dollar Index, which tracks the U.S. currency against a basket of others, advanced 0.3%. That added to its 0.8% gain Wednesday, which was its biggest climb in more than a year.

Investors’ risk appetite ebbed after Fed officials Wednesday gave the clearest signals yet of their plans to gradually pull back the easy monetary policies that helped propel markets to record highs. Their median projection showed they see lifting their benchmark rate to 0.6% by the end of 2023, sooner than they anticipated in March.

“The key message is that we will not stay here forever,” said Florent Pochon, head of cross-asset strategies at

Natixis.

“The Fed really wanted to take the opportunity of the current window and the strong momentum to send the signal that it is ready to normalize, but it will be a difficult exercise if they want to avoid another taper tantrum.”

While policy makers discussed the prospect of tapering the Fed’s bond-buying program, the timing of such a move remains unclear, Chairman

Jerome Powell

said.

The yield on the benchmark 10-year Treasury note was little changed from 1.569% on Wednesday, when it posted its biggest one-day advance in three months. Bond yields rise as prices fall.

“It was certainly a hawkish surprise, but given what we have seen with the growth picture and higher inflation, it would have been a surprise if there hadn’t been a shift,” said

Seema Shah,

chief strategist at Principal Global Advisors. “There have been some concerns building that the Fed was going to fall behind the curve, and I think this suggests that they won’t.”

After the market opening,

CureVac

slumped 47% after the German company said its experimental Covid-19 vaccine fared poorly in a large clinical trial, dimming the shot’s prospects for wider use.

Overseas, the pan-continental Stoxx Europe 600 slipped 0.4% after closing Wednesday at a record.

Japan’s Nikkei 225 closed down 0.9%, and South Korea’s Kospi Composite index edged 0.4% lower. The Shanghai Composite ticked up 0.2% and Hong Kong’s Hang Seng rose 0.4% each.

Federal Reserve Chairman Jerome Powell described the outlook for inflation in the U.S. economy and said there are signs that prices that have moved up quickly should cease rising and retreat. Credit: Al Drago/Associated Press

A strong U.S. economy means that inflation will be quicker, as there is a clear demand for labor, said

Kerry Craig,

global market strategist at J.P. Morgan Asset Management. “The markets are coming round to reality on that,” he said.

Mr. Craig expects the American central bank to start talking about plans to taper its current bond-buying program in September, and start scaling back early next year, followed by one increase in interest rates by the end of 2023.

South Korean and Japanese stock indexes fell Thursday.



Photo:

Lee Jin-man/Associated Press

Write to Will Horner at William.Horner@wsj.com and Chong Koh Ping at chong.kohping@wsj.com

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