Day Traders Diary

3/4/21

The major averages fell sharply on Thursday after Federal Reserve Chair Jerome Powell failed to reassure investors that the central bank would keep surging bond yields and inflation expectations in check. The S&P 500 finished down 51 points or 1.34% falling 2.5% at its session low. The Dow Jones Industrial Average slid 345 points. At one point, the blue-chip benchmark tumbled more than 700 points. The Nasdaq Composite fell 2.1% as growth stocks came under pressure amid rising rates. Apple slipped 1.6%, while Tesla dropped 5.4%. The heavy losses pushed the Nasdaq into the red for the year.

The tech-heavy benchmark also fell into correction territory, down more than 10% from its recent high on an intraday basis.

Powell said the economic reopening could "create some upward pressure on prices," reiterating that the central bank would be "patient" before changing policy even as it saw inflation pick up in what it expects would be a transitory fashion.

The Fed chief did acknowledge the rapid rise in rates recently caught his attention, but said the Fed would need to see a broader increase across the rate spectrum before considering any action, he said during the Wall Street Journal Jobs Summit Thursday.

Treasury yields, which have been keeping investors on edge in recent weeks, jumped to 1.54% after Powell's remarks. Last week, the benchmark 10-year yield soared to a high of 1.6% in a sudden move that sparked a big sell-off in stocks. Yields then generally eased back down this week before Powell triggered another spike.

Some investors may have been disappointed that Powell didn't make a strong hint of any changes in asset purchases by the Fed to contain the rapid increase in rates seen lately. Expectations were growing the Fed might implement an "Operation Twist" operation like it has done in the past where it sells short-term bills and buys longer-duration bonds.

Powell said price increases above the Fed's 2% target for a couple quarters or more would not cause consumers' long-term inflation expectations to materially change.

Gold shed more than 1% amid Powell's comments.

On the data front, investors digested a better-than-expected reading on weekly jobless claims. First-time filings for unemployment insurance in the week ended Feb. 27 totaled 745,000, a touch below the Dow Jones estimate of 750,000, the Labor Department reported Thursday.

Some believe additional stimulus measures could inject optimism into the market. The Senate is currently debating the $1.9 trillion relief package passed by the House on Saturday. President Joe Biden has backed a plan to cut the income caps for Americans to receive stimulus checks.

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