Dow down 260 points as investors focus on testimony from Fed's Powell

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By Steve Goldstein and William Watts

U.S. stocks fell Tuesday morning, as traders looked to confirmation-hearing testimony by Federal Reserve Chairman Jerome Powell for clues to how fast interest rates may rise in 2022.

What are major indexes doing?

On Monday, the Dow and S&P 500 ended lower, while the Nasdaq Composite closed fractionally higher. According to Dow Jones Markets Data, the Nasdaq’s reversal from a 2.7% slide earlier was the strongest intraday reversal since Feb. 28, 2020. The late-day reversal was driven by companies that had seen the worst year-to-date performance, according to Bespoke Investment Group.

What’s driving the market?

Markets will be tuned to Jerome Powell’s nomination hearing to serve a second term as chairman of the Federal Reserve, as well as speeches from regional Fed presidents throughout the day, with an eye on Wednesday’s inflation data.

Read:4 mistakes the Powell Fed made–from a former insider

In prepared testimony to be delivered at Tuesday’s Senate Banking Committee hearing, Powell said the Fed would take steps to make sure higher inflation seen over the past year won’t be allowed to develop deep roots in the economy.

“During Jerome Powell’s Senate confirmation hearing, I expect political grandstanding, but that is a comment on the Senate participants, not Chairman Powell himself,” said David Bahnsen, chief investment officer at the Bahnsen Group. “I believe Powell will stick to his script, as he generally is disciplined enough to do and I’m not expecting anything that would surprise markets.”

Powell is widely expected to be confirmed by the Senate.

Meanwhile, Kansas City Fed President Esther George, in a Tuesday speech, said the central bank should speedily reduce its enormous $8.5 trillion pile of bondholdings to help curb the highest U.S. inflation in almost 40 years and discourage undue risk-taking.

Cleveland Fed President Loretta Mester said she would back a rate increase in March if the economic backdrop resembles current conditions. Mester said she sees the Fed raising rates three times in 2022. George and Mester are both 2022 voting members of the Fed’s policy-setting Federal Open Market Committee.

Tech and other so-called growth stocks — shares of companies whose revenue and earnings are expected to grow faster than average — have been hard hit as Treasury yields have backed up sharply in response to expectations the Fed will be much more aggressive than previously anticipated in raising rates in an effort to rein in well above-target inflation.

The minutes from the December FOMC meeting released last week showed the central bank considering multiple rate increases this year and reducing its nearly $9 trillion balance sheet, that is still growing as the previous quantitative easing program is wound down. Some Wall Street banks, including Goldman Sachs and Deutsche Bank, now look for the Fed to raise interest rates four times in 2022, versus the three hikes penciled in by Fed policy makers in what’s known as the dot-plot forecast.

The yield on the 10-year Treasury ended Monday at the highest level since Jan. 17, 2020, pulling back slightly Tuesday. The 10-year yield has surged more than 25 basis points this year.

“We would not be surprised if tech and large cap growth stocks stage comeback rallies here and there along the way, but ultimately we believe the rotation into value is the better trend in 2022,” Bahnsen said, in emailed comments. “Our posture is that the broad market indices are vulnerable, and tech is the largest weightings in those broad market indices, but bottom-up selectivity still offers ample opportunities of value in this environment.”

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-Steve Goldstein

Which companies are in focus?

How are other assets trading?


(END) Dow Jones Newswires

01-11-22 0959ET

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