Treasury yields rise, stocks slide following Fed testimony
NEW YORK—Treasury yields rose Tuesday, and the Standard & Poor’s 500 index slid to its first loss in four days after the head of the Federal Reserve said that he’s feeling more optimistic about the economy.
The testimony by Fed Chairman Jerome Powell before Congress was highly anticipated, and he gave encouraging words about the economic data that have arrived in recent weeks. But some investors speculated they could mean the central bank will get more aggressive in raising interest rates than the market has prepared for.
The immediate reaction in the bond market was to send Treasury yields higher, and the yield on the 10-year note climbed to 2.90 percent from 2.86 percent late Monday. It had been down earlier in the morning.
Higher interest rates can hurt stock prices by making bonds more attractive. Generally, when interest rates are rising, companies need to produce bigger profits just for their stock prices to stay flat.
The S&P 500 fell 35.32 points, or 1.3 percent, to 2,744.28. It had been bouncing between modest gains and losses early in the morning, but the losses accelerated after Powell began answering questions on Capitol Hill.
The Dow Jones industrial average lost 299.24, or 1.2 percent, to 25,410.03, and the Nasdaq composite fell 91.11, or 1.2 percent, to 7,330.35.
The Fed raised its key policy interest rate three times last year and has signaled that another three increases may be coming in 2018. Powell reaffirmed to the House Financial Services Committee that the central bank plans to raise interest rates gradually as the economy improves.
The market got spooked earlier this month when potential signs of inflation strengthened, which raised speculation that the Fed may speed up its timetable. Stocks around the world fell sharply as a result, with the S&P 500 losing 10 percent from its record high at one point.
If the Fed does raise rates four times this year, it could upset markets when many investors have been preparing for only three increases, said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments.
The rise in Treasury yields sent stocks that pay big dividends to some of the market’s steepest losses. When bonds are paying more in interest, they can lure income investors away from dividend-paying stocks.
Real-estate investment trusts in the S&P 500, which are among the biggest dividend payers, lost 2.1 percent for the biggest loss among the 11 sectors that make up the index. Utilities fell 1.7 percent.
In the commodities markets, benchmark U.S. crude fell 90 cents to settle at $63.01 per barrel. Brent crude, the international standard, dropped 87 cents to $66.63 per barrel.
Natural gas was nearly flat at $2.68 per 1,000 cubic feet, heating oil fell 2 cents to $1.96 per gallon and wholesale gasoline lost 2 cents to $1.80 per gallon.