Stocks fell for a third day, casting doubt on a summer market comeback as the Federal Reserve and other global central bankers continued to signal they would raise interest rates to crush inflation despite the negative consequences for economic growth and, potentially, corporate profits.
The S&P 500 fell 0.8% below the 4,000 level, while the Nasdaq Composite lost 1%. Meanwhile, the Dow Jones Industrial Average traded 224 points, or 0.7%. The S&P 500 lost more than 3% in a major rout on Friday following inflation-fighting comments from Fed chief Jerome Powell and has continued to slide this week. The benchmark’s return from its mid-June low has been reduced to 9%.
The latest comments came Tuesday from New York Fed President John Williams. “I think with demand far outstripping supply, we need to get real interest rates…beyond zero. We need to have a somewhat restrictive policy to slow demand, and we’re not there yet. there,” Williams told the Wall Street Journal.
“We are still a long way from that,” he added.
Williams’ comments follow similar sentiments expressed by European Central Bank policymaker and Estonian central bank governor Madis Muller, who said on Tuesday that the central bank should discuss a 75 basis point rate hike. basis in September given the exceptionally high inflation.
Short-term rates continued to rise as investors bet on further rate hikes. The 2-year Treasury yield hit its highest level in almost 15 years.
“The markets are fragile and the warm reception [by the Fed Friday] shows that they are trying to be crystal clear that the pivotal Fed is not in the cards and that they will continue to make inflation their number one priority,” said Stephanie Lang, director investments at Homrich Berg. “This narrative is going to continue to put pressure on the market. We’re just going to have a lot of volatility…until the end of the year.”
She added that all eyes are on Friday’s jobs report, but a strong number would just mean more of the same rhetoric from the Fed, in terms of its commitment to cutting inflation.
“We’re at a tricky time, but I don’t think any particular data point is going to give the market relief,” Lang said. “You’re going to need to see several months of actual inflation data continue to decline for the Fed to feel a bit comfortable.”
Energy prices fell on Tuesday, with West Texas Intermediate futures, the US oil benchmark, falling more than 5.4%. Natural gas futures also fell.