Powell's Comments Cause Stocks to Fall

A shift in tone from the Federal Reserve policymakers could have a significant impact on investors

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Investors paused the previous session's rally Wednesday as they pondered what the Federal Reserve Chair Jerome Powell's recent remarks could mean for the trajectory of interest rates in the coming months. In early trading on Tuesday, the S&P 500 index decreased by 0.5%, just a day after it spiked 1.3% in a volatile session a day earlier. There was a 0.2% decline in the Dow Jones Industrial Average, while a 0.7% decrease in the Nasdaq Composite Index.

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Investors have been paying particular attention to comments from officials at the Federal Reserve this week. A number of bank officials are scheduled to speak after Mr. Powell delivered his remarks Tuesday, including Mr. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, and Mr. Christopher Waller, governor of the Federal Reserve Board. In light of last week's stronger-than-expected jobs report that stoked concerns that the Fed could end up tightening monetary policy by more than expected, traders will keep an eye out for any changes in tone.

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Following Powell's remarks in Washington on Tuesday, U.S. stocks plunged after he reiterated that lowering inflation would be bumpy and that more interest rate increases would be forthcoming. Nevertheless, some investors who had expected Mr. Powell to indicate a more aggressive interest rate trajectory following the jobs report did not find that to be the case, as he instead found relief in his remarks, which helped major indices to finish near-session highs.

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“In the current market, the magic word is 'disinflation', which is becoming an obsession for the market,” according to Charles-Henry Monchau, a chief investment officer of Geneva-based Bank Syz. Powell stated last week that the process of disinflation has already begun, and he reiterated that sentiment two days later. There hasn't been a drastic change in interest-rate expectations among traders in recent days, according to the futures market. Based on the data provided by CME Group, investors believe that the Federal Reserve will raise interest rates by another quarter of a percentage point in March.

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Treasury bond yields retreated Wednesday, in another sign that investors' expectations regarding interest rates are changing. As a result, the yield on the benchmark 10-year U.S. government bond fell from 3.673% on Tuesday to 3.661% on Wednesday. The yield on the two-year bond, which is more sensitive to near-term interest-rate expectations, fell from 4.469% to 4.454%. The yield on a bond falls when the price of the bond rises.

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The Trade Algo Dollar Index fell less than 0.1% on Wednesday, indicating that the dollar was relatively flat. Investors will also be paying attention to another round of earnings reports in addition to the Fed speakers. There will be a number of companies reporting after market close on Wednesday, including Robinhood and Walt Disney. Disney's earnings represent a first test for newly reinstalled CEO Robert Iger in the wake of his recent dismissal.

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The shares of Uber Technologies and CVS Health both rose after they posted their results. After Uber reported a rise in revenue and adjusted earnings last quarter, despite concerns over inflation and concerns about the state of the economy, the stock price of Uber jumped 6.5%. 

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During the third quarter, CVS earned a net income of $2.4 billion, as well as revenue of $1.3 billion, due to increases in the company's insurance and pharmacy services businesses. The company said its net income and revenue grew, thanks to gains in its insurance and pharmacy services businesses.

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After a report surfaced that Qatari investors could bid for Manchester United's shares, Manchester United stock jumped 12%, on pace for one of its best days ever, following a report that the British soccer club could be sold to Qataris.

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Markets were mixed in overseas trading on Wednesday. In contrast, most Asian indexes finished mostly lower while the pan-continental Stoxx Europe 600 rose 0.8%. The Shanghai Composite Index fell by 0.5%, the Hang Seng Index of Hong Kong fell by 0.1%, and the Nikkei 225 Index of Japan declined by 0.3%.

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The Turkish stock exchange suspended trading on Monday after a steep three-day sell-off triggered by back-to-back earthquakes that have claimed the lives of more than 11,000 people in two months.