NASDAQ Composite Plummets as Rate Hike Fears Hit High-Growth Technology Stocks

Wall Street investors headed for the exits on Friday with all three major benchmarks plunging more than 3%, after Federal Reserve Chairman Jerome Powell signaled that Fed policymakers would keep raising interest rates to tame inflation. Powell’s remarks flew in the face of bullish investors who were leaning toward a more modest path by the Fed.

The tech-heavy NASDAQ Composite was the biggest loser of the three, posting its worst daily performance in more than two months. Weighing down the index were high-growth technology stocks which plummeted after rallying the previous day in anticipation of Powell’s scheduled speech at the Jackson Hole central bankers’ conference in Wyoming.

Powell Sounds the Alarm for Higher Interest Rates

After a steady opening, stocks began to tumble after Powell said the U.S. economy will need tight monetary policy “for some time” before inflation is under control. That means slower growth, a weaker job market and “some pain” for households and businesses, he added.

After the speech, U.S. financial futures traders drove the chances of a 75 basis point rate hike in September to 61.0%. The probability of a 50 basis point rate hike is at 39.0%.

Although Powell was hawkish, his message was consistent with similar comments from other Fed officials over the last two weeks. Powell and the other Fed officials essentially said ‘Don’t expect us to turn rapidly from rate hikes this year to rate cuts next year, even if the economy weakens a bit.’

S&P 500 Sectors Down Across the Board

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

Losses Spread Across Wide Range of Stocks

The top decliners on Friday were 3M Co, NVIDIA Corp and HP Inc. They lost 9.54%, 9.23% and 8.93%, respectively.

Even though the tone of the market was bearish on Friday, Electronic Arts was able to buck the trend with a 3.573% gain.

Monthly Inflation Slows Sharply

Shortly before Powell’s speech, the U.S. did release fresh economic data on inflation, spending and income.

Reuters reported that U.S. consumer spending barely rose in July as falling gasoline prices hurt sales at service stations, but monthly inflation slowed sharply, which could reduce the need for the Federal Reserve to deliver another three-quarters of a percentage point interest rate hike next month.

Though the report from the Commerce Department on Friday showed a modest gain in personal income last month, wages increased strongly. That could help to underpin consumer spending and keep the economy growing, albeit moderately, Reuters suggested.