Dow falls 950 points, Nasdaq falls 3.8% after Powell warns of pain for households in battle with inflation

U.S. stock market losses deepened at the close after Federal Reserve Jerome Powell said the central bank would continue its fight against inflation “until the job is done” to bring the cost of living back to its 2 percent target.

How are shares traded?
  • The Dow Jones Industrial Average DJIA,
    -3.03%
    fell nearly 970 points, or 2.9%, to 32,316.

  • The S&P 500 SPX,
    -3.37%
    fell nearly 132 points, or 3.2%, to about 4,065.

  • The Nasdaq Composite COMP,
    -3.94%
    fell nearly 474 points, or 3.8%, to 12,165.

For the week, the Dow is on course for a 4% decline, while the S&P 500 is on track for a 3.8% slide and the Nasdaq is poised to lose 4.3%, FactSet data shows, finally checking.

What drives the market?

U.S. stocks fell sharply on Friday, with losses led by the tech-heavy Nasdaq Composite, after Federal Reserve Chairman Jerome Powell reiterated his determination to rein in rising inflation through higher interest rates.

In remarks that seemed even more hawkish than many investors had expected, Powell sought to quash any hope of a less hawkish monetary policy stance by insisting the central bank will stick to its fight against inflation, even if it means cause some short-term financial pain. for American families.

“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said. “While higher interest rates, slower growth and softer labor market conditions will reduce inflation, they will also bring pain to households and businesses.”

As U.S. stocks fell early Friday afternoon, the S&P 500’s IUIT information technology index,
,
Communication services SP500.50,
-3.86%
and areas of consumer discretion SP500.25,
-3.88%
seeing the biggest losses, FactSet data show, finally checking. All three regions were down more than 3% as growth stocks suffered more than their value.

“It seems like investors have literally been at the beach all summer and are oblivious to the problems that exist financially,” Ryan Belanger, founder and chief executive of Claro Advisors, said in a telephone interview on Friday. “This morning, President Powell’s remarks just focused the lens here.”

Jake Jolly, senior investment strategist at BNY Mellon Investment Management, said Powell’s remarks reinforced his tough stance.

“The market was clearly set for a hawkish ‘stick to the script’ type of speech, and the initial impression is what President Powell said — and he did it in less than 10 minutes,” Jolley said. “The key is that it closed the door on this idea that there’s going to be a near-term shift in Fed policy.”

Reading: How stocks perform as central bankers gather each year in Jackson Hole

As the selloff accelerated, Wall Street’s “fear gauge,” the CBOE VIX volatility index,
+17.36%
it rose to more than 25, according to FactSet data, at last check. That compares with a 200-day moving average of about 24.7, FactSet data show.

In the bond market, 10-year and two-year Treasury yields rose slightly on Friday, with the spread between them in inverted territory.

Ahead of Powell’s remarks, a batch of fresh economic data was released, including a reading on the Fed’s preferred inflation gauge, the personal consumption-expenditure index. Headline PCE fell 0.1% in July and to 6.3% from 6.8% annually. Core PCE, which excludes food and energy prices and is closely watched by Fed policymakers, rose 0.1% month-on-month but slowed by a slightly larger-than-expected amount to 4.6% in annual basis, from 4.8%.

Reading: Inflation fell in July for the first time in 20 months, according to the key gauge

Personal income rose 0.2% in July, while consumer spending rose 0.1%, below forecasts. The US trade deficit narrowed 9.7% in July, while inventories rose.

As Powell spoke, investors also received an update from the University of Michigan’s consumer sentiment survey, which showed that consumers’ outlook for the economy improved in August, while medium- and long-term inflation expectations continued to moderate .

“I would chalk it up to the fact that the price of a gallon of gas has dropped below $4 a gallon,” Wayne Wicker, chief investment officer at MissionSquare Retirement, said of the improving sentiment in a phone interview Friday. “Consumer psychology can be significantly influenced by how much it will cost them to fill up their car.”

Which companies are in focus?
  • Electronics Arts Inc.
    EA,
    +3.57%
    Shares rose 3.7%, even after reports debunked earlier rumors of a potential deal Amazon.com Inc.
    AMZN,
    -4.76%.

  • Shares of Dell Technologies Inc.
    DELL,
    -13.51%
    fell nearly 14% after executives said the end of the pandemic-induced boom in PC sales appeared in the second quarter. Revenue fell short of analysts’ expectations.

  • Gap Inc.
    gps,
    -1.90%
    lost 1.7%, erasing earlier gains that had followed an earnings report that slightly beat Wall Street expectations.

  • Meta Platforms Inc.
    POST,
    -4.15%
    fell about 4% as large-cap “FAANG” names retreated after Powell’s hawkish remarks. Amazon fell more than 4%, while Apple Inc.
    AAPL,
    -3.77%
    decreased slightly more than 3% and Netflix Inc.
    nflx,
    -4.57%
    fell 4.2%.

How are the other assets?
  • The yield on the 10-year bond TMUBMUSD10Y,
    3.028%
    rose 1.1 basis points to 3.034%, while the yield on the two-year Treasury TMUBMUSD02Y,
    3.367%
    strengthened by 1.9 basis points to 3.391%.

  • The ICE DXY Dollar Index,
    +0.30%
    rose 0.3%.

  • Crude prices CL.1,
    +0.38%
    closed higher, with West Texas Intermediate crude for October delivery CLV22;
    +0.38%
    rising 0.6% to $93.06 a barrel. For the week, first-month oil prices rose 2.9 percent, according to Dow Jones market data.

  • Gold futures GC00 closed lower, with gold for December delivery GCZ22;
    -1.22%
    falling 1.2% to $1,749.80 an ounce. For the week, the most active contract fell 0.7 percent, according to Dow Jones market data.

  • Bitcoin BTCUSD fell 4.5% to $20,670.

  • In European shares, the STOXX Europe 600 index SXXP,
    -1.68%
    closed 1.7% lower on Friday for a weekly drop of 2.6%, while the FTSE 100 UKX,
    -0.70%
    fell 0.7% on Friday, bringing the weekly decline to 1.6%.

  • In Asia, Japan’s NIKKEI 225 NIK,
    +0.57%
    it closed 0.6% higher on Friday, paring its loss for the week to 1%. China’s Shanghai Composite Index SHCOMP,
    -0.31%
    closed 0.3% lower on Friday for a weekly decline of 0.7%. Hong Kong Hang Seng HSI,
    +1.01%
    rose 1% on Friday for a weekly gain of 2%.

Hear Carl Icahn at the Best New Ideas in Money festival on September 21st and 22nd in New York. The legendary trader will reveal his take on this year’s wild market ride.

– Barbara Kollmeyer contributed to this report.

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