S&P, Nasdaq, Dow remain muted ahead of Powell testimony

The stock market slumped Tuesday after Fed chief Jay Powell warned about the possiblity of faster monetary tightening in remarks on Capitol Hill.

The Nasdaq Composite (COMP.IND) declined by 0.6%, S&P 500 (SP500) slid 0.6%, and the Dow (DJI) fell 0.4%.

Stronger than expected January data “suggest that inflationary pressures are running higher than expected at the time of our previous Federal Open Market Committee meeting,” Federal Reserve Chair Jerome Powell said Tuesday in his prepared testimony for the Senate Committee on Banking, Housing & Urban Affairs.

“If the totality of data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” he said.

That phrase jolted market, with Fed swaps pricing in a 54% chance that the FOMC would hike by 50 basis points at its next meeting, up from around 30%.

The 10-year Treasury yield (US10Y) gained 2 basis points to 4.00% and the 2-year yield (US2Y) rose 8 basis points to 4.97%.

The dollar (DXY) also pushed higher.

“Yield on 2-year US government #bonds is at levels not seen since 2007 and #markets now favor a 50 bps hike this month,” Mohamed El-Erian tweeted. “Such a reversal in rate policy, while warranted by a “data dependent” #Fed, would aggravate its damaged credibility after the earlier two mistakes in this cycle.”

Now read: S&P 500, Dow, Nasdaq see uncertain trading ahead of Powell testimony