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U.S. Stocks Extend Sell-Off As Yields Spike In Reaction To Powell Comments

wallstreet oct03 04mar21 lt

Stocks saw substantial volatility during trading on Thursday, with a sell-off seen in early afternoon trading resulting in a sharply lower close for the markets. With the steep drop on the day, the major averages extended the substantial move to the downside seen over the two previous sessions.

The Dow and the S&P 500 slumped to their lowest closing levels in a month, while the tech-heavy Nasdaq plunged to a two-month closing low.

The major averages all posted steep losses on the day, although the Nasdaq underperformed its counterparts. The Nasdaq plummeted 274.28 points or 2.1 percent to 12,723.47, while the Dow tumbled 345.95 points or 1.1 percent to 30,924.14 and the S&P 500 dove 51.25 points or 1.3 percent to 3,768.47.

The sell-off by on Wall Street came as treasury yields spiked in reaction to highly anticipated comments by Federal Reserve Chair Jerome Powell.

The yield on the benchmark ten-year note soared as Powell spoke, ending the session at its highest closing level in a year.

Speaking during The Wall Street Journal Jobs Summit, Powell acknowledged the reopening of the economy could "create some upward pressure on prices."

However, Powell suggested the increase in the annual rate of inflation would largely reflect comparisons to the low prices seen a year ago.

The Fed chief said he expects the increase in inflation to be "transitory" and stressed there is "a lot of ground to cover" before price growth reaches a sustainable level above the Fed's 2 percent target.

Powell said the recent spike in bond yields has "caught my attention," and he would be "concerned by disorderly conditions in markets or persistent tightening in financial conditions that threatens the achievement of our goals."

Nonetheless, the Fed chief did not signal a "twist" in the central bank's asset purchases as some investors had hoped, leading to the surge in yields.

Traders have kept a close eye on activity in the bond markets in recent sessions, as the jumps in yields has raised concerns about inflation and the outlook for interest rates.

On the economic front, the Labor Department released a report showing a modest increase in first-time claims for U.S. unemployment benefits in the week ended February 27th.

The report said initial jobless claims inched up to 745,000, an increase of 9,000 from the previous week's revised level of 736,000.

Economists had expected jobless claims to rise to 750,000 from the 730,000 originally reported for the previous week.

A separate report released by the Commerce Department showed a bigger than expected increase in new orders for U.S. manufactured goods in the month of January.

Sector News

Reflecting weakness in the broader tech sector, computer hardware stocks showed a substantial move to the downside on the day. The NYSE Arca Computer Hardware Index plunged by 4.7 percent to its lowest closing level in a month.

Semiconductor, networking and biotechnology stocks also saw considerable weakness, contributing to the steep drop by the tech-heavy Nasdaq.

Significant weakness was also visible among airline stocks, resulting in a 4.4 percent nosedive by the NYSE Arca Airline Index.

Steel, transportation, and brokerage stocks also showed notable moves to the downside on the day, moving lower along with most of the other major sectors.

Meanwhile, energy stocks were among the few groups to buck the downtrend, as crude oil for April delivery spiked $2.55 to $63.83 a barrel after OPEC and its allies agreed to extend production cuts.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably lower during trading on Thursday. Japan's Nikkei 225 Index and China's Shanghai Composite Index both tumbled by 2.1 percent.

European stocks also moved to the downside on the day. The U.K.'s FTSE 100 Index fell by 0.4 percent and the German DAX Index dipped by 0.2 percent, while the French CAC 40 Index ended the day nearly unchanged.

In the bond market, treasuries moved sharply lower in reaction to Powell's remarks. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8 basis points to 1.550 percent.

Looking Ahead

Trading on Friday may be impacted by reaction to the Labor Department's closely watched monthly employment report for February.

Economists currently expect employment to increase by 182,000 jobs in February after rising by 49,000 jobs in January. The unemployment rate is expected to hold at 6.3 percent.

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