U.S. stocks slammed into reverse after a Federal Reserve official said it may deliver none of the cuts to interest rates this year that Wall Street has been banking on, unless inflation improves
NEW YORK — U.S. stocks slammed into reverse on Thursday after a Federal Reserve official said it may deliver none of the cuts to interest rates this year that Wall Street has been banking on, unless inflation improves.
The S&P 500 was 0.8% lower in late trading after erasing an earlier gain of nearly 1% that had brought it it to the cusp of its record. The Dow Jones Industrial Average swung 412 points lower, or 1.1%, after reversing a rise of 294 points. The Nasdaq composite was 0.8% lower, as of 3:13 p.m. Eastern time.
Stocks slumped after Minneapolis Fed President Neel Kashkari said he’s concerned about the possibility of a too-hot economy reigniting upward pressure on inflation. He had earlier penciled in two cuts to interest rates this year, “but if we continue to see inflation moving sideways, then that would make me question about whether we need to do those rate cuts at all.”
“There’s a lot of momentum in the economy right now.” Neel Kashkari said in an interview with Pensions & Investments.
Kashkari’s warning cut at one of the main propellants that drove the U.S. stock market up more than 20% from November into March: the expectation for several cuts to interest rates, at least. Lower rates boost prices for investments, along with greasing the rails for the economy, and stock prices had already jumped in part on expectations for them.
Traders had already drastically scaled back their predictions for how many cuts to interest rates the Federal Reserve would deliver this year, down from six at the start of the year to three more recently. That had them in line with Fed officials generally.
But several recent updates on the economy have come in hotter than expected, beyond some disappointingly high inflation reports at the start of the year that could be partially chalked up to seasonal factors. A report earlier this week showing a surprise return to growth for U.S. manufacturing raised concerns in particular.
Treasury yields sank immediately in the bond market after Kashkari’s comments in the afternoon, as traders trimmed bets that the Fed may start cutting its main interest rate in June.
The yield on the 10-year Treasury fell to 4.31% from 4.35% late Wednesday. The two-year yield, which moves more on expectations for the Fed, slumped to 4.65% from 4.67% late Wednesday.
Earlier in the morning, yields had been holding steadier following a report that showed more U.S. workers applied for unemployment benefits last week, though the number remains low compared with historical standards.
Wall Street is looking for the job market to cool enough to remove upward pressure on inflation, but not so much that it throws too many people out of work and causes a recession.
That’s raised the anticipation for a report coming Friday, where the U.S. government will show how much hiring happened across the country last month. Economists expect it to show a cooldown in March from February.
“As always, the monthly jobs report will have the final say,” said Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley.
In the stock market, Nvidia was emblematic of the market’s shift, going from a gain of nearly 2% to a drop of 2.3%. It was the single heaviest weight on the S&P 500.
Lamb Weston slumped 19.5% after the frozen french fry maker said a transition to a new planning system hurt its ability to fill customer orders. It said the impact from the transition has likely passed, but it lowered its sales and profit forecast for the year. It also cited softer trends for restaurant traffic in the near term.
On the winning end of Wall Street, Conagra Brands climbed 4.9% after the owner of brands like Birds Eye and Duncan Hines reported a milder dip in revenue for the latest quarter than analysts expected. It also delivered a better profit than forecast.
Levi Strauss jumped 14.4% after its latest quarterly results likewise topped expectations. It also slightly raised its forecast for profit over its full fiscal year as it shifts to selling more jeans directly to consumers.
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AP Writers Chris Rugaber, Yuri Kageyama and Matt Ott contributed.