Stocks Fall and Nasdaq Plunges as Yields Jump on Inflation Worries

Stocks finish lower and the tech-heavy Nasdaq falls sharply as inflation worries send Treasury yields soaring.
Author:
Publish date:

Stocks finished lower Thursday as inflation worries sent Treasury yields soaring to their highest levels since January 2020.

The Dow Jones Industrial Average finished down 153 points, or 0.46%, to 32,862. The blue-chip index had touched an all-time intraday high during the session. 

The S&P 500 declined 1.48% and the Nasdaq slumped 3.02%.

The Dow and S&P 500 closed at records Wednesday after the Federal Reserve said it expected to keep interest rates near zero through 2023 and upgraded its outlook for economic growth. The Dow closed above 33,000 for the first time.

Oil fell 8% on concern new restrictions in Europe would hamper demand. 

Stocks reversed those gains on Thursday, however, as the Fed's continued support for the U.S. economy and its tolerance for faster inflation this year pushed the 10-year Treasury yield as high as 1.754%. Fed Chairman Jerome Powell had insisted that faster inflation would be temporary given the COVID disruption to the labor market.

The 30-year yield crossed 2.5% for the first time since August 2019. 

"The Fed is trying to walk a fine line between acknowledging higher economic growth and maintaining their view that they will leave short-term rates close to zero for the next two years," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

"This is effectively ignoring the likely impact of inflation and illustrates the rock and a hard place that the Fed finds themselves stuck between. 

"To the extent that Chair Powell acknowledges inflation risks, he gives credence to the market’s belief that the Fed will be forced to raise rates prior to 2023. [But] to the extent that he dismisses them as transitory, he loses credibility with the market and longer-term rates will keep moving higher as a result." 

Bond yields have been rising on expectations for higher inflation, sparking a rotation to value stocks and away from high-growth equities, particularly rate-sensitive technology shares.

Stocks such as Apple  (AAPL) - Get Report, Microsoft  (MSFT) - Get Report, Tesla  (TSLA) - Get Report and Amazon.com  (AMZN) - Get Report  traded lower Thursday.

Jim Cramer: We Might Have to Tolerate Inflation for a While

In its statement Wednesday, the Fed said it expected gross domestic product to increase 6.5% in 2021. That's the fastest pace since 1984 and up sharply from the projection of 4.2% it made in December. 

The Federal Reserve predicted that inflation, as measured by personal consumption expenditures, would rise 2.4% this year and then slow next year to 2%.

The central bank also kept interest rates unchanged at its meeting Wednesday and maintained its asset-purchase program at $120 billion of bonds a month.

I Am Not Buying What Fed Chair Powell Is Selling

Meanwhile, jobless claims in the U.S. unexpectedly rose last week to the highest since mid-February.

JPMorgan Chase, Goldman Sachs, Apple, Microsoft and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells the stocks? Learn more now.