Wow!  A quadruple-digit loss on the Dow and even the S&P suffered triple digits.  It seems Thursday’s exuberance was premature as the message coming from Jackson Hole was even worse than feared.  The clue came almost immediately when Powell prefaced his remarks by saying that today he was going to be unusually blunt, unusually direct because the circumstances called for more clarity.  And in his clarity he actually used the words “for some time” when referring to how long rates would remain up, and “some pain” when referring to how future Fed policy would impact households and businesses.  

So for a market very much hoping that rates would soon ease and that the economy would have a soft landing, those hopes were considered dashed with immediate sell off and the Dow dropping by just over a thousand points. One of the major issues Powell pointed out was that the number of job openings so greatly outpaced unemployment that the two had to be brought back into balance and the Fed was committed to staying the course until that and other factors were corrected.  

To be fair, Powell’s comments today were not really at all inconsistent with prior statements and the consensus among Fed presidents is that there will still be a soft landing, though that was not explicitly stated today. The Fed’s goal is for 2% inflation and the consensus is that rates will be gradually hiked to about the 4% mark by sometime next year to achieve that goal. The three indexes fell between 3 and 4 percent today, the worst drop since June, but surprisingly the VIX was not strongly impacted so the fear factor is not that great. This was the second consecutive week for losses though earlier reports did show that inflation had eased considerably so there remains some hope that the Fed may still trim its aggressive policies.  Volume got much closer to the 4-week average, just a tad below at just under 10.4 billion shares traded.  (My summary is quite a lot longer than usual today but I thought a thousand point drop in the Dow justified it.) 

Fri  August 26, 2022  5:11 PM

Wall Street ends in a hole after Powell's Wyoming speech

By David French

DJ: 33,291.78  +322.55        NAS: 12,639.27  +207.74       S&P: 4,199.12  +58.35     8/25

DJ: 32,283.40  -1,008.38      NAS: 12,141.71  -497.55        S&P: 4,057.66  -141.46    8/26

Aug 26 (Reuters) - Wall Street ended Friday with all three benchmarks more than 3% lower, as Federal Reserve Chief Jerome Powell's signal that the central bank would keep hiking rates to tame inflation nixed nascent hopes for a more modest path among some investors.  The Nasdaq led declines among the three U.S. benchmarks, registering its worst daily performance since June 16, weighed by high-growth technology stocks which tumbled after rallying the previous day in anticipation of Powell's scheduled speech to the Jackson Hole central banking conference in Wyoming.  The U.S. economy will need tight monetary policy "for some time" before inflation is under control, Powell said at the event. That means slower growth, a weaker job market and "some pain" for households and businesses, he added. read more

Investors knew further rate rises were coming, and they have been divided between whether a 75-basis-point and a 50-basis-point hike by the Fed was coming next month.  However, recent data highlighting continued strength in the labor market, to offset two consecutive quarters of negative economic growth, had led to some speculating a more tempered pace of hikes could be forthcoming.  "The pushback is coming from the idea that it's not about the pace of hikes going forward and how they tighten financial conditions, it's about the duration of remaining at that restrictive policy stance," said Garrett Melson, portfolio strategist at Natixis Investment Managers.  "That's the nuance they are trying to push forward and Powell was, maybe, a bit more explicit in that today. But if you've listened to other Fed speakers in the last couple of weeks, it's the same message."

With investors repositioning after absorbing the speech, the Cboe Volatility Index (.VIX) jumped 3.78 points to 25.56, its highest close in six weeks.

 

All the 11 major S&P 500 sectors were lower, led by declines of between 3.9% and 4.3% in the information technology (.SPLRCT), communication services (.SPLRCL) and consumer discretionary (.SPLRCD) indexes. 

 

The S&P 500 (.SPX) lost 141.46 points, or 3.37%, to end at 4,057.66 points, while the Nasdaq Composite  (.IXIC) lost 497.56 points, or 3.94%, to 12,141.71. The Dow Jones Industrial Average (.DJI) fell 1,008.38 points, or 3.03%, to 32,283.40. 

 

High-growth and technology stocks dropped. Nvidia Corp (NVDA.O) and Amazon.com Inc fell 9.2% and 4.8%, respectively, having led gainers in the previous session. Meanwhile, Google-parent Alphabet Inc (GOOGL.O), Meta Platforms Inc , and Block Inc (SQ.N) also dipped between 4.1% and 7.7%.

U.S. stock indexes have retreated since the turn of the year as investors priced in the expectation of aggressive interest rate hikes and a slowing economy.  But they have recovered strongly since June, with the S&P 500 recouping nearly half its losses for the year on stronger-than-expected quarterly earnings and hopes decades-high inflation has peaked.

However, Friday's falls wiped out the modest August gains which all three benchmarks had previously carved out, and sent the trio to their second straight week of declines.

For the week, the Nasdaq slid 4.4%, the Dow lost 4.2%, and the S&P 500 fell 4%.  Data earlier showed consumer spending barely rose in July, but inflation eased considerably, which could give the Fed room to trim its aggressive interest rate increases. read more 

 

Dell Technologies Inc (DELL.N) fell 13.5% as it joined rivals in predicting a slowdown as inflation and the darkening economic outlook prompt consumers and businesses to tighten their purse strings. read more  Affirm Holdings Inc (AFRM.O) tumbled 21.3% after the buy-now-pay-later lender forecast full-year revenue below Wall Street estimates, underscoring the broader downturn in the fortunes of the once high-flying fintech sector.

Volume on U.S. exchanges was 10.37 billion shares, compared with the 10.64 billion average for the full session over the last 20 trading days.