U.S. Stocks See Further Downside Amid Renewed Interest Rate Concerns

After moving mostly lower over the two previous sessions, stocks saw further downside during trading on Wednesday. The major averages all finished the day in negative territory, with the tech-heavy Nasdaq leading the slide.

The Nasdaq tumbled 165.10 or 1.2 percent to 13,502.20, continuing to give back ground after ending last Thursday’s trading at its best closing level in over a year. The S&P 500 also fell 23.02 points or 0.5 percent to 4,365.69, while the Dow dipped 102.35 points or 0.3 percent to 33,951.52.

Renewed concerns about the outlook for interest rates contributed to the weakness on Wall Street following remarks by Federal Reserve Chair Jerome Powell.

In testimony before the House Financial Services Committee, Powell reiterated the Fed is likely to continue raising interest rates in an effort to contain stubbornly elevated inflation.

“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said.

The Fed left rates unchanged last week, but the central bank’s latest projections suggest it plans to resume raising rates later this year, forecasting a rate of 5.6 percent by the end of 2023.

If the Fed decided to revert to its recent quarter-point increases, the forecast suggests the central bank will raise rates two more times this year.

The forecast for additional rate hikes come as Powell noted inflation pressures continue to run high and said the process of getting inflation back to the Fed’s 2 percent target has a “long way to go.”

Following Powell’s remarks, CME Group’s FedWatch Tool is indicating a 74.4 percent chance the Fed will raise rates by another quarter point following its next meeting in late July.

Sector News

Semiconductor stocks saw substantial weakness on the day, resulting in a 2.7 percent slump by the Philadelphia Semiconductor Index.

The index continued to give back ground after ending last Wednesday’s trading at its highest closing level in over year.

Networking, software and computer hardware stocks also showed significant moves to the downside, contributing to the steep drop by the tech-heavy Nasdaq.

On the other hand, energy stocks saw notable strength after falling sharply on Tuesday, benefiting from a rebound by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Wednesday. China’s Shanghai Composite Index slumped by 1.3 percent and Hong Kong’s Hang Seng Index plunged by 0.9 percent, although Japan’s Nikkei 225 Index bucked the downtrend and rose by 0.6 percent.

The major European markets also moved to the downside on the day. While the U.K.’s FTSE 100 Index edged down by 0.1 percent, the French CAC 40 Index and the German DAX Index slid by 0.5 percent and 0.6 percent, respectively.

In the bond market, treasuries bounced back near the unchanged line after seeing early weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 3.723 percent after reaching a high of 3.789 percent.

Looking Ahead

Powell’s second day of testimony on Capitol Hill may attract some attention on Thursday, while traders are also likely to keep an eye on reports on weekly jobless claims, existing home sales and leading economic indicators.

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