‘Skittish’ traders bring stocks down

U.S. stocks sold off for the first time in three sessions and Treasuries slumped as investors weighed the potential for added interest rate hikes this year following Federal Reserve Chairman Jerome Powell’s assessment that the economy is strengthening and inflation could be gaining speed. The dollar advanced.

All major equity gauges finished lower. Shares of media companies led the way down following Comcast’s $31 billion proposal to buy Sky Plc, which could set off a bidding war with Walt Disney Co. and 21st Century Fox Inc. Automakers and real estate developers also struggled.

Powell’s testimony raised the possibility that the Fed could rethink its plan for three interest rate hikes this year and potentially add a fourth. The 10-year Treasury yield initially spiked on Powell’s seemingly hawkish tone before drifting back below 2.9 percent.

“The markets are skittish,” said Barry James, president and portfolio manager at James Investment Research in Xenia, Ohio. “People are maybe a little bit oversensitive right now.”

The pace of U.S. monetary policy tightening remains a hot debate on Wall Street, and traders have been betting that Powell won’t seek to shock financial markets by moving toward a more hawkish monetary policy. Fed Governor Randal Quarles made clear on Monday that he thought a sustained period of strong growth might require higher interest rates.

“At some point rates do start to bite,” said Mona Mahajan, U.S. investment strategist for Allianz Global Investors. “And at some point if inflation does start to emerge more rapidly, which it can toward the end of the Fed cycle, we can start to see either the Fed making a policy mistake or equity markets start to price in a downward movement.”