Stock market today: Dow drops 1,000 points after Powell’s belligerent remarks

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Fed Chairman Jerome Powell’s speech hovered over markets all week.

Drew Angerer/Getty Images

The Dow Jones lost more than 1,000 points on Friday, after Federal Reserve Chairman Jerome Powell made hawkish remarks on monetary policy at the annual Jackson Hole symposium, even in the face of falling inflation .

The


Dow Jones Industrial Average

fell 1,008 points, or 3%, while


S&P500

fell by 3.4%, and the


Nasdaq Compound

fell 3.9%. The clues are broken a two-day winning streak. It was the Dow’s worst day since May 18 and the S&P 500’s worst day since June 13. Friday also marked the Nasdaq’s worst performance since June 16.

“Key message: Expect more volatility and tougher conditions for equities,” wrote Cliff Hodge, chief investment officer at Cornerstone Wealth.

Powell stressed that the Fed will adopt a policy aimed at limiting inflation and economic growth. The last two inflation results showing falling price increases, he noted, are too small a sample to force the Fed to back off its restrictive policy at this time.

“Chair Powell has poured cold water on the market’s belief that the Fed will take a mildly restrictive policy and then pause,” wrote Jeff Klingelhofer, co-chief investment officer at Thornburg Investment Management. “The Fed will not rest until it has gained significant confidence that inflation is on a clear path towards 2%.”

Data released on Friday showed that the Fed’s favorite inflation measure, the core personal consumption expenditure index, rose 4.6% year-over-year in July, down from to the 4.8% increase in June.

Still, rates rose on Friday. The 2-year Treasury yield, which tries to predict where the federal funds rate will be in a few years, rose about 3.39%, a hair below its last multi-year high reached in mid-June.

This means, right now, the stock market is not getting what it wanted. The stock market would like to see signs that the pace of rate hikes will slow, especially since it rallied this summer on hopes of fewer hikes.

Going into Friday, all three major indexes had risen in double digits in percentage terms from their mid-June lows for the year, and the market is now hoping the Fed will raise the funds rate by just half a dollar. percentage point in September. But the fed funds futures market puts the odds of a three-quarter point rise at around 61%, up from around 45% where it sat for a few minutes just before Powell spoke this morning.

There is good news, however. The Fed may need to raise interest rates aggressively in the coming months, but it could slow further after that, especially if inflation can continue to fall. The final federal funds rate, or the rate at which the Fed will stop climbing, is still below 50% likely to go as high as 4%.

“The quiet part that they are [the Fed] not to say out loud is that this type of short-term rate would be really penalizing for risky markets,” said James Camp, managing director of strategic income at Eagle Asset Management.

In fact, Powell left open the possibility of a smaller half-point increase in September, saying the Fed will wait to see more economic data before deciding. So on the aggressive – or hawkish – rate hike rhetoric, “it barely pounded the table,” wrote Gerard MacDonell, an economist at 22V Research.

In line with this hint of optimism, the stock market is not falling to a scary low just yet.

The S&P 500, although down, is still above its 50-day moving average, indicating that market participants are still confident enough in the economic and market outlook to buy at prices in line with their recent trends.

It’s for now. Monday’s market open will be telling as further declines could take the index below its 50-day moving average.

Here are some stocks moving on Friday:

seagen

(ticker: SGEN) fell 5.7% following a report that spoke of

Merck

(MRK) to acquire the company – in a deal estimated to be worth around $40 billion – has stalled.

Merck

the stock was flat.

Everbridge

(EVBG) jumped 17% following a report that the enterprise software company was considering selling to an industrial company or private equity group.

Marvell Technology

(MRVL) fell 8.9% after the data center semiconductor maker issued a lukewarm third-quarter sales forecast, forecasting revenue of about $1.56 billion, below 1.58 billion dollars considered by Wall Street.

Sanofi

(SNY) rose 0.8% on Friday after Citi analysts placed the stock on positive watch as the settlement of a case involving the drug Zantac could fall well short of the $20 billion expected by the market.

First Solar

(FSLR) gained 0.1% after being upgraded to Buy from Neutral at Bank of America.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com

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