Wall Street ends well as Powell speech affirms hawkish rate stance

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., August 15, 2022. REUTERS/Brendan McDermid/File Photo

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Aug 26 (Reuters) – Wall Street tumbled to a deep close on Friday as investors keen on a more modest interest rate path were disappointed by Federal Reserve chief Jerome Powell signaling that the bank central government would continue to raise rates to keep inflation under control.

The Nasdaq led the decline among the three U.S. benchmarks, weighed by high-growth tech stocks which tumbled after rebounding the day before ahead of Powell’s scheduled speech at the Jackson Hole central bank conference in Wyoming. .

The U.S. economy will need tight monetary policy “for a while” before inflation is brought under control, Powell said at the event. That means slower growth, a weaker job market and “some pain” for households and businesses, he added. Read more

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Investors knew more rate hikes were coming, and they were split between a 75 basis point hike and a 50 basis point hike by the Fed next month.

However, recent data pointing to continued strength in the labor market, offsetting two consecutive quarters of negative economic growth, had led some to speculate on a more moderate pace of increases.

“The pullback comes from the idea that it’s not about the pace of the hikes coming and how they tighten financial conditions, but about how long this restrictive policy stance is maintained,” Garrett Melson said. , portfolio strategist at Natixis Investment Managers.

“That’s the nuance they’re trying to drive home and Powell was maybe a little more explicit about that today. But if you’ve listened to other Fed speakers over the last two weeks, it’s the same message.”

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All 11 major S&P 500 sectors were down, along with information technology (.SPLRCT)Communication Services (.SPLRCL) and consumer discretionary (.SPLRCD) indices among the largest declines.

According to preliminary data, the S&P 500 (.SPX) fell 140.83 points, or 3.35%, to finish at 4,058.29 points, while the Nasdaq Composite (.IXIC) lost 496.39 points, or 3.93%, to 12,142.88. The Dow Jones Industrial Average (.DJI) fell 1,003.74 points, or 3.01%, to 32,288.04.

Weighing down on mega-cap growth and tech stocks, two-year US Treasury yields briefly hit their highest levels since October 2007 before stabilizing near two-month highs.

High-growth and technology stocks fell.

After leading the winners in the previous session, Nvidia Corp (NVDA.O) and Amazon.com Inc fell. Meanwhile, Google-parent Alphabet Inc (GOOGL.O)Meta Platforms Inc (META.O)and Block Inc. (SQ.N) also dipped.

US equity indices have fallen year-to-date as investors price in expectations of aggressive interest rate hikes and a slowing economy.

But they have rallied strongly since June, with the S&P 500 recouping nearly half of its losses for the year on stronger-than-expected quarterly earnings and hopes inflation, which has been high for decades, has peaked.

Earlier data showed that consumer spending barely rose in July, but inflation fell significantly, which could give the Fed some leeway to scale back its aggressive interest rate hikes. Read more

Dell Technologies Inc fell as it joined rivals in predicting a slowdown as inflation and a darkening economic outlook prompt consumers and businesses to tighten their purse strings. Read more

Affirm Holdings Inc. (AFRM.O) fell after the buy now, pay later lender forecast full-year revenue below Wall Street estimates, underscoring the broader downturn in the fortunes of the once high-flying fintech sector.

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Reporting by Bansari Mayur Kamdar, Devik Jain, Anisha Sircar and Sruthi Shankar in Bengaluru and David French in New York; Editing by Maju Samuel, Aditya Soni and Grant McCool

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