Stocks sink after Powell’s hawkish Jackson Hole message

U.S. stock futures fell to start the week, extending a sell-off that began Friday after a hawkish speech by Fed Chairman Jerome Powell at the central bank’s meeting in Jackson Hole.

Futures tied to the S&P 500 fell 0.9 percent, and futures in the Dow Jones industrial average fell by about the same margin, or 290 points. Contracts on the tech-heavy Nasdaq Composite fell 1.2 percent.

Meanwhile, in the bond market, the benchmark 10-year Treasury note jumped above 3%, and the yield on the 2-year note jumped to an upper 3.45%, the highest level since 2007.

“Chairman Powell’s speech was a good reminder that 2-year Treasury yields are more important to equity markets than whether the FOMC moves by 50 or 75 basis points at upcoming meetings,” DataTrek’s Nicholas Colas said in a Monday note. , noting that US large-cap stocks were sensitive to the 2-year benchmark.

The jump in two-year yields from 2.28% to 3.45% in mid-June was what broke equity valuations, with the S&P hitting a June 16 low after yields peaked on June 14 at 3, 45%, Colas said. And just as 2-year yields flattened to nearly 3%, the S&P 500 rallied 17% through August 16.

Monday’s moves in the markets come after the Nasdaq fell 3.9% on Friday and the S&P 500 fell 3.3%, with both indexes posting their biggest daily declines since June 13. The Dow Jones industrial average shed 1,000 points, or about 3%.

Federal Reserve Chairman Jerome Powell walks with Fed Vice Chairman Lael Brainard and New York Fed President John Williams during a break at the Kansas City Fed's annual Economic Policy Symposium in Jackson Hole, Wyoming, U.S., August 26 2022. REUTERS/Ann Saphir

Federal Reserve Chairman Jerome Powell walks with Fed Vice Chairman Lael Brainard and New York Fed President John Williams during a break at the Kansas City Fed’s annual Economic Policy Symposium in Jackson Hole, Wyoming, U.S., August 26 2022. REUTERS/Ann Saphir

The most significant risk to stocks is earnings weakness, according to Morgan Stanley’s Mike Wilson, who said that while the first half of the year was dictated by Federal Reserve policy and tighter economic conditions, the second half will be defined from earnings expectations for the next. year.

“As a result, equity investors should be laser-focused on this risk, not the Fed, particularly as we enter the seasonally weaker period of the year for earnings revisions and inflation further erodes margins and demand,” Wilson said .

Wells Fargo’s head of global asset allocation strategy, Tracie McMillion, echoed a similar view in an interview with Yahoo Finance Live on Friday.

“What we heard today was that growth is very strong,” McMillion said. “What that means for earnings is that we will probably need to see some cuts to earnings expectations for the third and fourth quarters.”

Earnings season is coming to an end, but results from several headliners remain available for investors this week, including Best Buy ( BBY ), HP ( HPQ ), Big Lots ( BIG ), Chewy ( CHWY ), Lululemon Athletica ( LULU), and Broadcom (AVGO).

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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