After a couple of big winning sessions, all it took was another comment from the Fed that more aggressive balance sheet tightening was very likely on the horizon in order to make monetary policy more neutral. The comments brought back the January panic over recession and brought the indexes crashing down again, with both value and growth being hit hard.  The Dow closed down 280, the Nasdaq 328.  The irony is that just yesterday the experts were suggesting that Fed tightening would boost the growth stocks again and today they’re saying it’s “certainly having a negative effect on equities” due to concerns over recession.  Same exact scenario, two polar opposite conclusions.  

The fear over the hawkish stance has put the S&P back in dark territory.  From a 12.5% drawdown earlier this year, it had recovered to just 3% down Friday and 4% yesterday.  With today’s drop, it is now down 5% for the year.  But what the hey guys? We’ve known for years that the Fed can’t keep interest rates near zero forever and, though it served its purpose, it is also the reason there’s been so much volatility in the stock market for over ten years now.  Interest rates must get back to normal so why get into a twist over it?  And now Ukraine has added enough additional confusion that the spikes in inflation and volatility will likely not end until Ukraine is resolved.  Volume remains below average at 11.4 billion. 

Tue  April 5, 2022  4:45 PM

Wall Street, tech shares stumble on fears of aggressive Fed

By Lewis Krauskopf, Bansari Mayur Kamdar and Praveen Paramasivam

DJ: 34,921.88  +103.61       NAS: 14,532.55  +271.05       S&P: 4,582.64  +36.78     4/4

DJ: 34,641.18  -280.70        NAS: 14,204.17  -328.39        S&P: 4,525.12  -57.52      4/5

April 5 (Reuters) - Wall Street's main indexes fell on Tuesday, dragged by weakness in tech and other growth stocks, after comments from Federal Reserve Governor Lael Brainard spooked investors about potential aggressive actions by the central bank to control inflation.  The tech-heavy Nasdaq  (.IXIC)  posted its biggest daily percentage drop in about a month, with declines in heavyweight stocks such as Apple Inc (AAPL.O) and Amazon.com Inc (AMZN.O).  At a conference on Tuesday, Brainard said she expects methodical interest rate increases and rapid reductions to the Fed's balance sheet to bring U.S. monetary policy to a "more neutral position" later this year, with further tightening to follow as needed. read more

Brainard's comments "drove home the point that the Fed is poised to get more aggressive,” said Kristina Hooper, chief global market strategist at Invesco.  “That is certainly having a negative effect on equities because of concerns that this increases the probability of a recession," Hooper said. "It’s going to be increasingly difficult for the Fed to engineer a soft landing the more aggressive it gets.”

The Dow Jones Industrial Average (.DJI) fell 280.7 points, or 0.8%, to 34,641.18, the S&P 500  (.SPX)  lost 57.52 points, or 1.26%, to 4,525.12 and the Nasdaq Composite (.IXIC) dropped 328.39 points, or 2.26%, to 14,204.17. Among S&P 500 sectors, technology (.SPLRCT) slumped 2.2% while consumer discretionary (.SPLRCD) fell 2.4%. The utilities sector (.SPLRCU) rose 0.7%. U.S. Treasury yields rose to multi-year highs with yields taking off after Brainard's comments.

The prospect of a more hawkish Fed led to a rocky start to the year for equities and in particular for tech and growth shares whose valuations stand to be more pressured by higher bond yields. Stocks have rebounded in recent weeks, with the S&P 500 now down about 5% so far this year.  Focus on the Fed will continue on Wednesday, when the central bank releases minutes of its March meeting.  “For the rest of this week, the market will be driven by interest rates and it will be driven by the Fed’s comments about interest rates,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

Investors also remain focused on the Ukraine crisis, which has led to rising commodity prices that stand to worsen an already-worrisome inflationary picture. read more  In economic news, data showed U.S. services industry activity picked up in March, boosted by the rolling back of pandemic restrictions, but businesses continued to face higher costs as supply strains persisted. read more 

 

In company news, shares of Twitter Inc (TWTR.N) gained 2%, adding to their prior-day surge, as the social media company said it will offer Tesla CEO and entrepreneur Elon Musk a seat on its board of directors. read more  Carnival Corp (CCL.N) shares rose 2.4% after the cruise operator reported its highest booking week in its history. read more  Shares of Spirit Airlines (SAVE.N) soared 22.5% after reports that JetBlue Airways (JBLU.O) has made an offer to buy Spirit. read more

Declining issues outnumbered advancing ones on the NYSE by a 4.33-to-1 ratio; on Nasdaq, a 2.96-to-1 ratio favored decliners.  The S&P 500 posted 42 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 55 new highs and 100 new lows.

About 11.4 billion shares changed hands in U.S. exchanges, compared with the roughly 13 billion daily average over the last 20 sessions.