Day #3 of investors reacting badly to the slightest hint from the Fed that interest rate hikes may be in the future sooner than expected. Today the trigger was Commissioner Bullard substantially upping the stakes with his suggestion that, rather than the 2023 date that spooked the markets Wednesday, that it might instead be as early as next year. The markets went tumbling, particularly the Dow diving 533 points. The Dow is now down about 1,000 points in three days.  Of course today’s expert said that it might just be old fashioned profit taking and that not all Fed officials are as hawkish as Bullard. There’s bound to be more volality in the coming week as more Fed governors give more speeches, some hawkish, some dovish. Volume was huge at nearly 15 billion, but this must be dismissed as today was “quadruple witching day,” the day each quarter when all options and futures contracts expire thereby artificially greatly exaggerating activity. Today in fact saw the largest volume of options expirations in history. 

Fri  June 18, 2021  4:41 PM

Wall Street ends sharply lower after hawkish Bullard spooks investors

DJ: 33,823.45  -210.22        NAS: 14,161.35  +121.67       S&P: 4,221.86  -1.84        6/17

DJ: 33,290.08  -533.37        NAS: 14,030.38  -130-.97       S&P: 4,166.45  -55.41      6/18

June 18 (Reuters) - The three main Wall Street indexes all finished sharply lower on Friday, after investors were spooked by hawkish interest rate comments by Federal Reserve official James Bullard.  The blue-chip Dow and the benchmark S&P 500, which started the week at record closing levels, slumped after Bullard, president of the St. Louis Federal Reserve, said he was among the seven officials who saw rate increases beginning next year to contain inflation.  Inflation, and how the U.S. central bank will tackle it as the country comes out of the pandemic, had been front-and-center of investors' minds in the run-up to this week's Fed policy meeting.  Therefore, since the Fed on Wednesday projected interest rate hikes would happen sooner than previously expected, and signaled it was reaching the point where it could begin talking about tapering its massive stimulus - as opposed to just thinking about it - Wall Street's main indexes have struggled. read more

"I'm not surprised to see the market sell off a little bit. I'm never surprised, given the strong run we've had for such a long period of time, when you see some periods of profit-taking," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.  Bullard's comments spiked the CBOE volatility index (.VIX), Wall Street's fear gauge, which initially hit its highest level since May 21, before dropping back a touch.  "Next week, you will have various Fed governors give speeches, and we'll have the same thing: some governors will be more hawkish, and some will be more dovish, so you'll see some back-and-forth," Ghriskey added. 

On Friday, the Dow Jones Industrial Average fell 533.37 points, or 1.58%, to 33,290.08, the S&P 500 lost 55.41 points, or 1.31%, to 4,166.45 and the Nasdaq Composite dropped 130.97 points, or 0.92%, to 14,030.38. 

Other market ramifications from Bullard's comments have included further strengthening of the U.S. dollar . The index which tracks the greenback against six major currencies jumped to its highest level since mid-April, and is on pace for its largest weekly gain in about 14 months. read more  While U.S. crude prices - which traditionally suffer from a strong dollar - initially fell on Friday, they rebounded after OPEC sources said the producer group expected limited U.S. oil output growth this year.  The upward commodity move didn't translate into positive sentiment for U.S. energy stocks, with the sector's index (.SPNY) joining financials (.SPSY) as the worst performers.

Friday was also "quadruple witching day," the quarterly simultaneous expiration of U.S. options and futures contracts which bring about increased trading volume at the market close.  It was the largest options expiration in history, noted Randy Frederick, vice president of trading and derivatives for Charles Schwab. 

Volume on U.S. exchanges was 14.97 billion shares, compared with the 10.96 billion average over the last 20 trading days.