Wall Street tech shares stumble on fears of aggressive Fed
Wall Street’s main indexes fell on Tuesday, dragged by weakness in tech and other growth stocks, after comments from Federal Reserve Governor Lael Brainard spooked investors about potential aggressive actions by the central bank to control inflation.
The tech-heavy Nasdaq (.IXIC) dropped sharply with declines in heavyweights such as Apple Inc (AAPL.O) and Amazon.com Inc (AMZN.O).
At a conference on Tuesday, Brainard said she expects methodical interest rate increases and rapid reductions to the Fed’s balance sheet to bring U.S. monetary policy to a “more neutral position” later this year, with further tightening to follow as needed.
Brainard’s comments “drove home the point that the Fed is poised to get more aggressive,” said Kristina Hooper, chief global market strategist at Invesco.
“That is certainly having a negative effect on equities because of concerns that this increases the probability of a recession,” Hooper said. “It’s going to be increasingly difficult for the Fed to engineer a soft landing the more aggressive it gets.”
According to preliminary data, the S&P 500 (.SPX) lost 56.48 points, or 1.23%, to end at 4,525.76 points, while the Nasdaq Composite (.IXIC) lost 324.92 points, or 2.24%, to 14,207.63. The Dow Jones Industrial Average (.DJI) fell 271.38 points, or 0.78%, to 34,648.33.
U.S. Treasury yields rose to multi-year highs with yields taking off after Brainard’s comments.
The prospect of a more hawkish Fed led to a rocky start to the year for equities and in particular for tech and growth shares whose valuations stand to be more pressured by higher bond yields. Stocks have rebounded in recent weeks.
Focus on the Fed will continue on Wednesday, when the central bank releases minutes of its March meeting.
“For the rest of this week, the market will be driven by interest rates and it will be driven by the Fed’s comments about interest rates,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
Investors also remain focused on developments in the Ukraine crisis, which has led to rising commodity prices that stand to worsen an already-worrisome inflationary picture.