Stocks fell Thursday and bond yields jumped as Federal Reserve officials signaled their rate-hiking campaign to slow inflation is far from over.
The Dow Jones Industrial Average dipped 11 points, or 0.04%, after falling as much as 314 points in the session. The S&P 500 slipped 0.49%, while the Nasdaq Composite dipped 0.35%.
Stocks rebounded from lows reached earlier in the day as shares of Cisco jumped more than 3%. The networking equipment company surpassed expectations in its fiscal first-quarter report, and issued upbeat guidance. Other tech stocks such as Apple and Intel also led gains.
Investors weighed comments from St. Louis Federal Reserve President James Bullard, who said in a speech Thursday that “the policy rate is not yet in a zone that may be considered sufficiently restrictive.”
“The change in the monetary policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” added Bullard.
The policy-sensitive 2-year Treasury yield jumped to 4.465% Thursday, raising fears higher rates would send the economy into a recession.
“I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there,” said Kansas City Fed President Esther George to The Wall Street Journal on Wednesday.
Stocks vulnerable to a recession and higher rates led losses in the S&P 500. Materials stocks declined, as did consumer discretionary names. Defensive stocks such as health care outperformed.
“Additional monetary tightening and the cumulative impact of this year’s rate hikes suggest recession risks remain elevated,” wrote Mark Haefele, UBS Global Wealth Management chief investment officer, in a note. “We continue to believe that the macroeconomic preconditions for a sustainable rally—that interest rate cuts and a trough in growth and corporate earnings are on the horizon—are not yet in place.”