By Joy Wiltermuth and Mark DeCambre
U.S. stock benchmarks recovered some ground Wednesday, following the worst selloff for the S&P 500 index in roughly four months, after climbing bond yields spooked investors already bracing for the Federal Reserve’s planned wind down of easy-money policies as the economy recovers.
How did stock indexes perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.34% rose 0.3% to end at 34,390.72, a gain of 90.73 points, but off the session’s high.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -1.18% gained 0.2% to close at 4,359.46, picking up 6.83 points.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -1.83% shed 34.24 points, or 0.2%, finishing at 14,512.44.
On Tuesday , the Dow fell 569 points, or 1.63%, to 34,300 and the S&P 500 declined 90 points, or 2.04%, to 4353, its worst daily percentage drop since May 12, according to Dow Jones Market Data. The Nasdaq Composite dropped 423 points, or 2.83%, to 14547.
What drove the market?
Wednesday’s modest move higher for two major stock indexes came even though benchmark U.S. Treasury yields edged higher for a seventh straight day, putting the yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +2.71% near 1.54%.
Yields began their ascent last week, following a Federal Reserve meeting that indicated the central bank was ready to begin backing away from its accommodative policy put in place to help the economy cope with the pandemic.
Surging yields pushed some investors to press the sell button this week, notably on interest rate sensitive technology and other growth-related names, though companies geared to the economic cycle also saw losses.
Federal Reserve Chairman Jerome Powell said Wednesday that high U.S. inflation and shortages could last into the early part of 2022, but that he expects price pressures to cool off as supply-chain bottlenecks ease. On Tuesday, Powell said some of the supply-side glitches behind the surge in inflation have “gotten worse.”
Fed Chair Powell has begun to characterize inflation as “stronger than expected and probably less transitory than originally thought,” said Joe Quinlan, head of CIO market strategy for Merrill and Bank of America Private Bank, in a phone interview Wednesday.
“The question isn’t when will the Fed start tapering. That’s already priced in. But do we pull more rate hikes forward in 2022?” Quinlan said. “That’s what markets are trying to figure out.”
Instead of worrying about the Fed potentially increasing interest rates too quickly and stunting the economic recovery, as some others fear, Quinlan said the bigger risk may be going too slow, particularly if inflation stays elevated.
“The biggest issue is that we haven’t seen the light at the end of the tunnel on these supply-chain bottlenecks,” Quinlan said, adding that when quarterly corporate earnings reporting kicks off in about two weeks that, “earnings guidance will be all about bottlenecks, bottlenecks.”
Other investors and analysts think increasing pricing pressures could be fairly muted.