U.S. stock market skids Tuesday, spooked by Fed’s Powell tough talk on interest rates and 5% Treasury yields

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US stocks declined on Tuesday, along with the S&P 500 index SPX.
Slipping below a key resistance level, as Federal Reserve Chairman Jerome Powell spooked investors by talking of a possible need for higher interest rates to combat extremely high levels of inflation.

Fed Chair Powell told members of Congress that stronger economic data could trigger the need for higher interest rates than previously thought, while leaving the door open for a larger 50 basis point increase in the fed-funds rate in March.

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During Powell’s testimony, the 2-year Treasury yield rose above 5%, the highest level since 2007, while the S&P 500 broke below its 50-day moving average, setting a precedent for the other major indexes. And the leg is reduced.

Fed’s Powell puts stock investors on notice: Hot data could mean big rate hike

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“I think it was Powell’s comment that the economy is somewhat strong and that inflation is sticking around,” said Robert Pavlik, a senior portfolio manager at Dakota Wealth Management. “As the day went on,” he said, “the momentum has moved downward.”

Pavlik pointed to the 2-year Treasury yield TMUBMUSD02Y,
Shares climbed above 5% as a catalyst for the downdraft, while the S&P 500 also fell below 3,994.19, its 50-day moving average.

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“A lot of eyes are on him.

Stock market investors look to the S&P 500’s 50-day moving average as a potential sign of an uptrend when it crosses, but also downtrend when it falls below the average.

The last time the index fell below its 50-day moving average was on March 2, according to data from Dow Jones Markets. According to FactSet, stocks still managed to end the week higher, but the main three indexes were on pace for weekly declines of 1.4%-1.6% since Tuesday.

“In the short term, this could mean stocks are a little lower,” said Peter Cardillo, chief market economist at Spartan Capital Securities, “especially with the monthly US February nonfarm payrolls report coming out, and the January jobs report coming much after.” Stronger than expected.

The 2-year Treasury yield is sensitive to the Fed’s benchmark policy rate, having risen 4.5 percent in the past year. However, the 10-year Treasury rate TMUBMUSD10Y,
was knocking on 4%’s door on Tuesday, signaling a deep inversion of the Treasury yield curve, a reliable predictor of previous recessions.

Connected: Bond-market recession gauge plunges to three digits below zero on way to new four-decade milestone

“It’s a clear sign of recession,” Cardillo said of Tuesday’s deep yield-curve inversion. “That, in itself, means that inflation will come down.”

The S&P 500 fell 1.5%, while the Dow Jones Industrial Average DJIA,
SHED 1.7% and NASDAQ Composite Index Comp,
It closed down 1.3%.

Credit: www.marketwatch.com /

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