Nasdaq Index, Dow Jones, S&P 500 News: Stocks Plunge on Powell’s Rate Stance

James Hyerczyk
Published: Feb 5, 2024, 15:42 UTC

S&P 500 drops amid Powell's rate stance, Treasury yield surge, and mixed earnings reports."

S&P 500 Index, Nasdaq-100 Index, Dow Jones

In this article:

Key Points

  • Powell’s comments trigger market drop.
  • 10-year Treasury yield climbs to 4.158%.
  • Mixed corporate earnings shake investor confidence.

Market Reaction to Powell’s Remarks

U.S. stock markets faced a significant drop on Monday, a direct reaction to Federal Reserve Chair Jerome Powell’s latest comments. Powell, in a televised interview, indicated that the Federal Reserve is not considering imminent interest rate cuts. This stance led to a shift in investor sentiment, especially after a streak of market gains fueled by positive job data and strong earnings reports from tech giants.

At 15:25 GMT, the Dow is trading 38270.25, down 384.17 or -0.99%. The S&P 500 Index is at 4926.47, down 32.14 or -0.65% and the Nasdaq-100 Index is trading 1925.45, down 37.28 or -1.90%.

Interest Rates Outlook

Powell’s remarks underscored the Fed’s ongoing focus on achieving a stable inflation rate around 2%. He conveyed a need for more concrete signs of inflation easing before any potential reduction in interest rates. This conservative approach aligns with his previous comments, signaling that a rate cut in March remains unlikely. This position maintains pressure on the markets, as investors recalibrate their expectations in light of continued higher interest rates.

Treasury Yield Impact

The yield on the 10-year Treasury note rose sharply to 4.158%, an increase that typically exerts pressure on stocks, particularly growth-oriented sectors. Higher yields can dampen investor enthusiasm for riskier assets, as they make the safer government bonds more attractive. This rise in yields represents a key factor in the current market pullback, emphasizing the sensitivity of stocks to interest rate expectations.

Earnings Reports Influence

The earnings season has delivered a mixed bag. McDonald’s reported disappointing results, leading to a drop in its share price. Conversely, Caterpillar and Estee Lauder exceeded expectations, boosting their stocks. Boeing’s shares declined due to ongoing issues with their 737 Max airplanes. These diverse earnings reports contribute to the market’s volatility, as investors weigh corporate performance amidst broader economic uncertainties.

Short-Term Market Forecast

In the short term, the market is leaning towards a bearish outlook. The combination of Powell’s cautious stance on interest rates, the surge in Treasury yields, and mixed corporate earnings paints a picture of heightened market uncertainty. While underlying economic indicators like job growth and services sector expansion are positive, the immediate market trend suggests a period of consolidation and potential pullback as investors reassess their positions in a still-volatile economic landscape.

Technical Analysis

Daily E-mini S&P 500 Index

Powell’s hawkish remarks has created uncertainty, which usually gives investors an excuse to take profits and step aside. That being the case, investors also start to worry about other factors especially overbought markets.

By some measures, the E-mini S&P 500 Index is running “too hot”, which means it’s too far above the nearest support. Currently, the market is trading 4948.75. It’s nearest support is the uptrending 50-day moving average at 4778.21. This is the target that investors are shooting for.

In addition to alleviating some of the upside pressure, a significant break from current price levels into the 50-day MA, will place the market at a reasonable price level to attract new investors or new money, which this market badly needs to continue the robust pace of the rally.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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