Markets Confront Reality of Higher and Faster Rate Hikes After Powell Comments

Barry Adams
07 Mar, 2023
New York City

Major indexes accelerated decline in the afternoon after worries of larger interest rate hike at the next policy meeting resurfaced. 

The uptick in Treasury yields came together with a weakness in high-growth and tech stocks after the Federal Reserve chairman delivered a hawkish sentiment in his prepared remarks for lawmakers. 

The yields on the U.S. Treasury notes maturing between three months and two years traded above 5% for the first time since 2007. 

Federal Reserve chairman Jerome Powell said the central bank is ready to increase rates faster if incoming data supported the case in his testimony to the U.S. Senate Banking, Housing and Urban Affairs Committee Tuesday morning. 

Moreover, Powell added that the terminal rates are likely to be higher than previously estimated. 

Chairman Powell noted that latest economic data have been stronger-than-anticipated and to bring down inflation to 2% and restore price stability will require raising rates to restrictive levels. 

At the Fed's policy meeting in February, the committee raised the target range for federal funds by 25 basis points to between 4.5% and 4.75%, the highest level since 2007.  

Chairman Powell's comments suggested that the central bank may increase rates by a larger amount than last month's 25 basis points at its next two-day policy meeting ending on March 22.   

The talk of faster rate hikes and higher terminal rates spooked investors and tech stocks accelerated the decline in the afternoon. 

 

U.S. Indexes & Yields 

The S&P 500 index decreased 1.5% to 3,986.41 and the Nasdaq Composite index fell 1.3% to 11,530.33. 

The yield on 2-year Treasury notes inched higher to 5.02%, 10-year Treasury notes inched higher to 3.96% and 30-year Treasury bonds edged higher to 3.87%.  

Crude oil fell $3.19 to $77.27 a barrel and natural gas prices fell 9 cents to $2.66 a thermal unit. 

 

U.S. Stock Movers 

Dick's Sporting Goods Inc increased 9.2% to $144.28 after the specialty retailer reported higher-than-expected sales in the holiday period. 

Profit in the fourth quarter declined 32% despite sales rising 7.3% in the period, hurt by lower gross margin. 

 Net sales in the quarter rose 7.3% to $3.60 billion from $3.35 billion in the previous year and comparable store sales rose 5.3%.

Net income fell to $235.6 million or $2.60 per share from $346.1 million or $3.16 per share in the prior-year quarter.

Excluding items, adjusted income decreased to $2.93 per share from $3.64 a year ago. 

JetBlue Airways Corporation declined 0.2% to $8.39 and the Justice Department sued the company to block its proposed takeover of the discount airline Spirit Airlines.  

Rivian Automotive Inc plunged 12% to $15.02 after the electric vehicle maker said it plans to offer $1.3 billion convertible debt amid growing demand slump. 

The electric vehicle maker lost $6.8 billion in 2022 and after supply chain issues negatively impacted production. 

Meta Platforms Inc increased 1% to $186.33 after a Bloomberg report said that the parent of Facebook is planning to layoff thousands of employees as early as this week. 

 

European Markets Trade Near One-year Highs 

Stocks in Europe lacked direction and investors reacted to local earnings and awaited commentary from the U.S. Federal Reserve chairman Jerome Powell. 

France's benchmark index advanced to a new record high and Germany's index traded at a new one-year high after energy prices eased for the third week in a row. 

German factory orders unexpectedly rose and the UK's home prices rose at the fastest pace in eight months. 

 

German Factory Orders Unexpectedly Rose In January 

German factory orders rose unexpectedly in January driven by demand from international customers. 

German factory orders increased 1.0% in January from the revised 3.4% in December, the Federal Statistical Office or Destatis said Tuesday. 

Manufacturing new orders on an annual basis declined at a faster rate of 10.9% in January after dropping 9.9% in December. 

 

UK Home Prices Increased at 8-month High Rate

Home prices in the UK rose at a faster pace in February underpinned by the improving confidence and resilient labor markets. 

Despite the cost of living crisis, home prices rose 1.1% in February after rising 0.2% in January, S&P Global and Halifax said in a report released Tuesday. 

Home prices rose for the second month in a row and jumped at the fastest pace since June 2022. 

The average home price increased to £285,476 in February compared to £282,360 in January.

 

Europe Indexes & Yields 

The DAX index increased 0.2% to 15,678.50, the CAC-40 index added 0.2% to 7,387.18 and the FTSE 100 index advanced 0.3% to 7,949.76. 

The yield on 10-year German Bunds edged down to 2.66%, French bonds to 3.15%, the UK gilts to 3.78% and Italian bonds to 4.45%. 

The euro hovered near $1.065, the British pound inched lower to $1.19 and the Swiss franc to 93.36 cents. 

Brent crude oil eased 56 cents to $85.56 a barrel and the Dutch TTF natural gas edged up to Є42.05 per MWh. 

 

Europe Stock Movers 

Schaeffler AG fell 7.3% to €6.84 after the Germany-based bearings maker reported a decline in financial year 2022 profit and issued a cautious outlook for 2023. 

The company also trimmed its dividend. 

Henkel AG declined 2.2% to €67.70 after the German chemical and consumer goods company reported a 13.7% decline in its adjusted operating earnings in 2022. 

HelloFresh SE decreased 6.9% to €21.16 after the meal-kit maker estimated lower-than-expected core profit in 2023. 

Ashtead Group plc increased 3.3% to 5,936.0 pence after the UK-based equipment rental company said annual results are likely to surpass its own estimate. 

Zalando SE increased 3.4% to €40.15 after the online marketplace operator said it plans to focus on improving its operating margins and eliminate unnecessary costs. 

John Wood Group Plc increased 14.3% to 221.80 pence after the UK-based engineering company said it is likely to reject the latest buyout proposal from the private equity group Apollo Global Management. 

Greggs Plc declined 0.7% to 2,732.0 pence after the bakery and fast food chain said that the company is facing inflationary cost pressures.