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The Dow Jones Industrial Average fell 122.35 points or 0.46% to 26307.79 with most of the losses coming as the yield on the 10-year Treasury yield hit an intraday high. The 30-stock benchmark dropped as much as 249 points at its intraday low. The S&P 500 slipped 0.21% to 2917.52, while the Nasdaq Composite fell 0.16% despite a jump in Tesla shares.
Powell said Wednesday that recently low inflation pressures may just be “transitory,” hinting that a rate cut may not be on the horizon, which disappointed traders. Powell’s comments sparked a sudden sell-off in the previous session, with the Dow closing more than 150 points lower.
“This sell-off is more an ongoing reaction to Powell and fading insurance cut anticipation,” said Adam Crisafulli, a J.P. Morgan managing director.
The Fed Chairman’s comments followed the central bank’s decision to leave rates unchanged, citing lackluster inflation. Ahead of the meeting, President Donald Trump had asked the central bank to cut rates and increase stimulus.
Traders slashed the chances for a rate cut this year to below 50% briefly on Thursday, according to the CME’s tracker of futures trading for the Fed’s benchmark. The fed funds futures market was assigning a nearly 65% probability of at least one rate cut by Dec. 11 before Powell’s comments Wednesday.
“I think investors need to get into their heads that the period of low inflation, low interest rates and monetary policy continuing to provide nothing but stimulus is over,” Abby Joseph Cohen, senior U.S. investment strategist at Goldman Sachs, told CNBC’s “Squawk on the Street. ” “Markets instead should be looking at the economy and profits. It’s a good picture and one we think makes sense.”
The drop in stocks also coincided with comments from House Speaker Nancy Pelosi, who accused Attorney General William Bar of lying to Congress. Investors would be wary of more partisan infighting that could hurt the chances of the White House and Congress working together on an infrastructure bill and a plan to raise the debt ceiling.
Thursday’s pullback was led by the tech sector as stocks such as Apple and Microsoft retreated from highs that came after better-than-expected earnings earlier this week. Shares of the iPhone maker fell 0.65% Thursday after surging as much as 6% on Tuesday when it reported strong guidance and an improvement in its China business. Microsoft was down more than 1.3%, falling for a second day after briefly hitting $1 trillion market cap on strong earnings.
More than half of the S&P 500 has reported calendar first-quarter earnings and the results have largely outperformed expectations. According to FactSet, 74.7% of the S&P 500 companies have beaten earnings estimates.
The strong results pushed equities to record highs earlier in the week. The S&P 500 hit an intraday record on Wednesday before closing lower while the Nasdaq reached an all-time high earlier this week.
But stocks could face a tougher road ahead as the earnings season winds down, said Ilya Feygin, senior strategist at WallachBeth Capital.
“We’re done with earnings season pretty much. All the Apples and the Googles have reported,” Feygin said. “I think this focus on single names is going to stop and we’re going to focus on the macro news, which to me is not that great as the earnings.”
Tesla shares rose more than 3% after the company unveiled a plan to raise up to $2 billion, with $1.35 billion coming from convertible bonds. The remaining $650 million would come from new equity, which includes a $10 million purchase by CEO Elon Musk.
—CNBC’s Silvia Amaro contributed to this report.