U.S. Stocks Extending Pullback As Powell Expects Further Rate Hikes

Stocks have moved mostly lower in morning trading on Wednesday, extending the pullback seen over the two previous sessions. The major averages have all moved to the downside, with the tech-heavy Nasdaq leading the slide.

Currently, the Nasdaq is down 129.38 points or 1.0 percent at 13,537.91 and the S&P 500 is down 18.98 points or 0.4 percent at 4,369.73. The narrower Dow is posting a more modest loss, edging down 60.45 points or 0.2 percent at 33,993.42.

Concerns about the outlook for interest rates are contributing to the continued weakness on Wall Street following remarks by Federal Reserve Chair Jerome Powell.

In testimony before the House Financial Services Committee, Powell reiterated the Fed is likely to continue raising interest rates in an effort to contain stubbornly elevated inflation.

“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said.

The Fed left rates unchanged last week, but the central bank’s latest projections suggest it plans to resume raising rates later this year, forecasting a rate of 5.6 percent by the end of 2023.

If the Fed decided to revert to its recent quarter-point increases, the forecast suggests the central bank will raise rates two more times this year.

The forecast for additional rate hikes come as Powell noted inflation pressures continue to run high and said the process of getting inflation back to the Fed’s 2 percent target has a “long way to go.”

Following Powell’s remarks, CME Group’s FedWatch Tool is indicating an 81.8 percent chance the Fed will raise rates by another quarter point following its next meeting in late July.

Sector News

Semiconductor stocks are seeing significant weakness on the day, with the Philadelphia Semiconductor Index falling by 1.7 percent. The index continues to give back ground after ending last Wednesday’s trading at its highest closing level in over year.

Considerable weakness is also visible among networking stocks, as reflected by the 1.4 percent drop by the NYSE Arca Networking Index.

Software and telecom stocks have also shown notable moves to the downside, while energy stocks are rebounding along with the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Wednesday. China’s Shanghai Composite Index slumped by 1.3 percent and Hong Kong’s Hang Seng Index plunged by 0.9 percent, although Japan’s Nikkei 225 Index bucked the downtrend and rose by 0.6 percent.

The major European markets have also moved to the downside on the day. While the French CAC 40 Index is down by 0.5 percent, the German DAX Index is down by 0.4 percent and the U.K.’s FTSE 100 Index is down by 0.2 percent.

In the bond market, treasuries have come under pressure following Powell’s comments. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 5.6 basis points at 3.785 percent.

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