Stocks dipped for a second day on Wednesday and rates soared to new heights as investors bet the Federal Reserve is about to aggressively tighten policy to fight inflation, and in turn slow the economy.
The Dow Jones Industrial Average traded 251 points lower, or 0.7%. The S&P 500 slid 0.8%, and the Nasdaq Composite pulled back by 1.3%.
Minutes from the Fed’s most-recent meeting are slated for release Wednesday afternoon. The minutes come from last month’s meeting when the central bank raised rates and indicated six more hikes were coming this year. Investors are bracing for new details about the Fed’s plan to reduce its balance sheet after comments from Fed officials knocked down stocks on Tuesday.
The 10-year Treasury yield jumped above 2.65% on Wednesday, hitting a three-year high and continuing its rapid climb this week. The rate ended Monday at 2.40%.
Fed Governor Lael Brainard in a speech on Tuesday indicated support for higher interest rates and said a “rapid” reduction of the central bank’s balance sheet could begin as soon as May. Following her remarks, the Dow pulled back by about 280 points and the Nasdaq Composite slid 2.3%.
“It is of paramount importance to get inflation down,” Brainard said during a Minneapolis Fed webinar. Brainard has been nominated to be vice chair of the Federal Open Market Committee.
San Francisco Fed President Mary Daly also shared concerns about inflation. “I understand that inflation is as harmful as not having a job,” Daly said.
Tech shares fell again on Wednesday following Tuesday’s losses, as investors rotated out of the group and braced for higher rates to slow the economy. Chipmakers Nvidia and Marvell Technology continued their descent on Wednesday.
Tesla, Microsoft, and Amazon shares were also slated to fall more than 2% on Wednesday and Twitter shed 3% premarket after rallying this week amid news that Elon Musk purchased a large stake in the company. As the Federal Reserve hikes rates investors have begun rotating into stocks with stable profits and shying away from those offering future growth.