Wall St falls on fears of hawkish Fed, fresh Russia sanctions
Wall Street's main indexes fell on Tuesday after US Federal Reserve Governor Lael Brainard said she expects rapid reductions to the central bank's balance sheet, spooking investors already on edge about the prospect of fresh sanctions on Russia.
The tech-heavy Nasdaq led losses as expectations of quicker interest rate hikes dulled the appeal for high-growth stocks. Amazon.com Inc, Apple Inc and Nvidia Corp fell between 1.4% and 3.8%.
Six of the 11 major S&P 500 sectors advanced in mid-day trading, with utilities stocks hitting a new record high. Technology and consumer discretionary shares fell more than 1.5% each, offsetting gains.
“What is spooking the market is the phrase 'at a rapid pace' because that implies they (Fed) will not only allow bonds to mature, but will also be selling bonds in order to get to a more neutral policy by the end of the year,” said Sam Stovall, Chief Investment Strategist at CFRA Research in New York.
“That's what's causing investors to be concerned - the speed and aggressiveness of the Fed with its balance sheet reductions.”
Investors now expect nearly 78.8% odds of a 50 basis points rate hike at the US central bank's meeting in May, a slight rise from 74.9% in the previous session, according to CME Group's Fedwatch tool.
Brainard said she expects methodical rate hikes and that the Fed will quickly ramp up reductions to its nearly $9 trillion balance sheet to a “considerably” more rapid pace of runoff than the last time.
US Treasury yields rose to multi-year highs following Brainard's statement, with longer-term yields moving faster and partly reversing some of the recent inversion moves in the US curve.
Meanwhile, data from the Institute for Supply Management showed US services industry activity picked up in March, boosted by the rolling back of pandemic restrictions, but businesses continued to face higher costs as supply strains persisted.
Micro-blogging site Twitter Inc gained 4.5%, adding to its 27% surge in the previous session, after saying it will name top shareholder and Tesla Inc CEO Elon Musk to its board.
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