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The S&P 500 dropped 1.2 per cent for its worst day in seven weeks. Earlier in the day, a gain of nearly 1 per cent had brought it to the cusp of its record set last week.
The Dow Jones swung 1.4 per cent lower, being solidly in the green for most of the session. The Nasdaq composite fell 1.4 per cent.
Financial markets were already on edge as traders made their final moves ahead of a jobs report on Friday that could itself shake the market. A late-day spurt for oil prices amid continued tensions in the Middle East unsettled things, threatening to add more pressure on inflation following oil’s strong gains so far this year. Around the same time, Treasury yields dropped in the bond market, which can be a signal of investors looking for safer harbours, and a measure of fear among US stock investors leaped.
Stocks slumped after Minneapolis Fed President Neel Kashkari said he’s questioning the need to cut rates if so many areas of the economy look to be solid despite high interest rates.
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.” Kashkari said in an interview with Pensions & Investments.
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.
Wall Street fell across the board.Credit: AP
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 seen as temporary blips. A report earlier this week showing a surprise return to growth for US manufacturing raised concerns in particular.
Kaskhari is not a voting member on the Fed’s policy-making committee this year, but that doesn’t mean he doesn’t have a voice at the table.
“The market remains highly sensitive to any indication that the data dependent Fed may need to curtail a rate easing cycle this year per Neel Kashkari’s comments this afternoon,” according to Quincy Krosby, chief global strategist for LPL Financial.
In the bond market, the yield on the 10-year Treasury fell to 4.30 per cent from 4.35 per cent late Wednesday. The two-year yield, which moves more on expectations for the Fed, slumped to 4.64 per cent from 4.67 per cent late Wednesday.
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Earlier in the morning, yields had been holding steadier after a report showed more US 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 US government will show how much hiring happened across the country last month. Economists expect it to show a cooldown in March from February.
In the stock market, Nvidia went from a gain of nearly 2 per cent early in the day to a drop of 3.4 per cent. It was the single heaviest weight on the S&P 500.
In the oil market, a barrel of benchmark US oil climbed $US1.16 to settle at $US86.59 and is up more than 20 per cent already so far this year. Brent crude, the international standard, climbed $US1.30 to $US90.65.
With AP
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