Stocks finished lower Tuesday as Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen made their first joint appearance before a congressional committee.
The Dow Jones Industrial Average finished down 308 points, or 0.94%, to 32,423, the S&P 500 declined 0.76% and the Nasdaq dropped 1.12%.
Tuesday marked the one-year anniversary of the stock market’s bottom after the coronavirus pandemic sent stocks reeling.
Powell said the U.S. central bank "will continue to provide the economy the support it needs for as long as it takes" since a recovery is "far from complete."
Yellen said the passage of President Joe Biden's $1.9 trillion relief plan will help people "reach the other side of this pandemic with the foundations of their lives intact.
"And I believe they will be met there by a growing economy. In fact, I think we may see a return to full employment next year,” Yellen added.
Bond yields retreated Tuesday, with the 10-year U.S. Treasury at 1.656% ahead of an auction this week of $183 billion of notes. A sale of seven-year notes will be closely watched after it stumbled last month, sending yields higher.
The 10-year Treasury yield hit 1.754% last week, a 14-month high.
The narrower yield on the benchmark Treasury has provided some relief to investors who were worried that a U.S. economic recovery will bring on inflation and make the Federal Reserve less inclined to maintain its loose monetary policy.
Powell said Tuesday that he expected inflation to move higher this year but added the Fed's "best view is that the effect on inflation will be neither particularly large nor persistent.”
"While the rise in bond yields has caused stock market volatility in recent weeks, we believe the uptick in yields is simply part of the reflation trade," said Greg Marcus, managing director at UBS Private Wealth Management.
"All other asset classes have either hit their pre-pandemic levels or exceeded them, with the exception of the 10-year Treasury bond.
"Bond yields are simply returning to pre-pandemic levels, which were already very low by historical comparisons. We expect the broader stock market to be able to cope with higher bond yields," Marcus said.
Oil prices declined sharply, down 6%, on concern about a coronavirus resurgence in Europe and questions about data from AstraZeneca's (AZN) COVID-19 vaccine trial.
U.S. crude prices dropped below $60 a barrel following planned lockdowns in Europe and a firmer U.S. dollar.
AstraZeneca finished lower Tuesday after the U.K. drugmaker may have included outdated information from its COVID-19 vaccine trial, providing an “incomplete” view of the efficacy of the data, according to U.S. health officials.
AstraZeneca said Tuesday its data were based on a pre-specified interim analysis with a cutoff of Feb. 17.
"We have reviewed the preliminary assessment of the primary analysis and the results were consistent with the interim analysis," the U.K. drugmaker said in a statement. "We are now completing the validation of the statistical analysis."