Updated at 4:15 pm EST
U.S. stocks ended sharply lower Friday as traders reacted to hawkish remarks from central bank officials amid slowing economic growth signals, with the Dow falling 1,000 points by the close of trading as part of the biggest two-day decline of the year.
In what are likely his final public comments before next week's policy meeting, Federal Reserve Chairman Jerome Powell told a panel at the International Monetary Fund's spring meetings in Washington that there was a case for "front loading" rate hikes, adding that a 50 basis point move would be on the table."
The comments come at a sensitive time, said Jamie Cox, managing partner for Harris Financial Group.
"Markets are very uneasy about the growing likelihood of a policy error by the Federal Reserve," said . "When a Fed official suggests a 50 basis points hike, markets immediately start trying to price in 75 basis point hikes," he said. "It's madness really."
Cox said that "most investors would be well served to ignore the machinations of the pricing craziness and wait to see what actually happens with rates."
The CME Group's FedWatch tool now suggests a near 100% chance of that size of a move early next month, that would take the base Fed Funds rate to a range of 0.75% to 1%, with a 90% chance of a similar move in June.
"The Fed is beginning to understand that 2% is not a realistic target over the near term. They’re in a tough spot, as the known unknowns are something they cannot control, i.e., Ukraine, supply chains, and the knock-on effects from China," said Rob Daly, director of fixed income at Glenmede Investment Management.
"Going above neutral or adjusting the neutral rates is not out of the realm of possibility, and the probability of this happening has only gone higher." he added.
The Dow Jones Industrial Average finished down 981 points, or 2.82%, at 33,811 points, while the S&P 500 fell 2.77% to close at 4,271.78 points. The tech-focused Nasdaq lost 335 points.
European Central Bank President Christine Lagarde also suggested her colleagues could begin rate hikes in July -- far sooner than expected -- in order to tame the highest rates of inflation on record in the euro area.
Her comments came just prior to data showing a slowdown in manufacturing activity around the region, based on S&P Global's PMI readings, although solid service sector data is still providing support. PMI data for the U.S., published showed activity slowing back to the pace last seen at the start of the year.
Benchmark 10-year note yields jumped to 2.95% in overnight trading, while 2-year notes hit 2.762%, the highest since December 2018, as traders re-set interest rate sensitive assets following Powell's comments in Washington, which have coincided with the biggest weekly outflow of equity market funds -- $17.5 billion -- so far this year, according to Bank of America data.
The dollar index, which tracks the greenback against a basket of six global currencies, hit a fresh two-year high of 101.95 in New York trading. Benchmark 10s were last seen at 2.987% while 2s were trading at 2.694%.
Twitter (TWTR) - Get Free Report shares rose 3.93% following a report from the New York Post that suggests billionaire Tesla (TSLA) - Get Free Report CEO Elon Musk could team up with private-equity firm Thoma Bravo in his $46.6 billion takeover bid for the social media group.
Snap (SNAP) - Get Free Report shares fell earlier in the session but ended up 1.2% after the instant messaging app maker cautioned that ad sales could be hit by the surge in inflation, as well as the supply chain challenges facing companies around the world, even as it forecast solid user growth.
American Express (AXP) - Get Free Report edged 2.8% lower after posting stronger-than-expected first quarter earnings, but only confirming its full-year profit forecast, as travel and entertainment spending surged to reclaim levels last seen just prior to the 2020 pandemic.
Verizon Communications (VZ) - Get Free Report fell 5.6% after modestly stronger-than-expected first quarter earnings were dimmed by the carrier's narrowing of full-year forecasts for wireless revenues and profit growth.