U.S. Stocks Show Significant Move Back To The Downside

Stocks moved sharply lower during trading on Wednesday, giving back ground following the rally seen in the previous session. The major averages all moved to the downside on the day, with the tech-heavy Nasdaq leading the pullback.

The major averages finished the session near their worst levels of the day. The Nasdaq tumbled 203.27 points or 1.7 percent to 11,910.52, the S&P 500 slumped 46.14 points or 1.1 percent to 4,117.86 and the Dow slid 207.68 points or 0.6 percent to 33,939.01.

The pullback on Wall Street came as some traders looked to cash in Tuesday’s gains, which came amid a positive reaction to comments by Federal Reserve Chair Jerome Powell.

Powell acknowledged recent indications of easing inflation but noted that the disinflationary process has a long way to go and cautioned further interest rate hikes could be needed.

The positive sentiment generated in reaction to Powell’s comments was partly offset by remarks by New York Fed President John Williams, who said interest rates may need to be kept at an elevated level for a “few years” to bring down inflation.

“To me, the important thing is we need a sufficiently restrictive stance, we need to retain a sufficiently restrictive stance of policy, we’re going to need to maintain that for a few years to make sure we get inflation to 2 percent, then eventually we’ll get interest rates presumably back to more normal levels,” Williams said at The Wall Street Journal’s CFO Network Summit in New York.

The comments from Powell and Williams come after the Fed raised interest rates by 25 basis points last and signaled further rate hikes in the future.

“Williams quickly sank risk appetite after he reminded Wall Street that if financial conditions loosen, higher rates may be needed,” said Edward Moya, senior market analyst at OANDA.

He added, “Financial conditions have been easing since October and this is why the Fed needed to push back on how the markets have been pricing in rate cuts at the end of the year.”

Overall trading activity was somewhat subdued, however, with a relatively light economic calendar keeping some traders on the sidelines.

Reports on initial jobless claims and consumer sentiment are likely to attract attention in the coming days, with the consumer sentiment report including readings on inflation expectations.

Sector News

Semiconductor stocks turned in some of the market’s worst performances on the day, resulting in a 2.2 percent slump by the Philadelphia Semiconductor Index.

Considerable weakness was also visible among interest rate-sensitive utilities stocks, as reflected by the 1.7 percent drop by the Dow Jones Utility Average. The average fell to its lowest closing level in almost three months.

Housing stocks also showed a significant move to the downside, dragging the Philadelphia Housing Sector Index down by 1.6 percent.

Telecom, biotechnology and natural gas stocks also saw notable weakness, while oil service stocks bucked the downtrend amid a sharp increase by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan’s Nikkei 225 Index dipped by 0.3 percent, while South Korea’s Kospi jumped by 1.3 percent.

The major European markets also finished the day mixed. While the French CAC 40 Index edged down by 0.2 percent, the U.K.’s FTSE 100 Index rose by 0.3 percent and the German DAX Index climbed by 0.6 percent.

In the bond market, treasuries turned positive after moving to the downside earlier in the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2.1 basis points to 3.653 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to the Labor Department’s report on weekly jobless claims as well as the latest earnings news.

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