US stocks erase gains on hawkish Powell signals

The S&P 500 fell after rallying more than 2 percent earlier Wednesday.

Stocks erased gains and Treasury yields spiked as Jerome Powell signaled the Federal Reserve will steadily remove support for the economy as it battles rampant inflation.

The S&P 500 fell after rallying more than 2% earlier Wednesday, the dollar rose while 10-year yields topped 1.8%. The central bank chief said he backs a March liftoff and won’t rule out a hike every meeting, while noting the inflation situation is “slightly worse” than it was in December. Powell added that he’s inclined to boost his forecast by a “few tenths.” In its statement, the Fed signaled its first rate hike since 2018 will happen “soon,” while saying it expects a balance-sheet reduction to start afterward.

Swaps linked to Fed meeting dates indicate that traders are now pricing in around 30 basis points of tightening at the next central bank gathering in March. The central bank typically moves rates in increments of 25 basis points, so that kind of pricing suggests that at least a standard hike is certain and there is around a one-in-five possibility of a 50 basis point hike. Around 1.13 percentage points of tightening are priced in for the whole of 2022.

Other corporate highlights:

• Microsoft Corp. said its cloud-computing business has potential to drive growth, while Texas Instruments Inc.’s upbeat outlook signaled demand for electronic components remains high.
• Planemaker Boeing Co. recorded $5.5 billion in total charges and costs to cover higher factory and customer expenses for the 787 Dreamliner.
• AT&T Inc. posted earnings that topped estimates, giving investors less reason to fret over lavish free-phone promotions.
• Nasdaq Inc., operator of the technology-heavy stock exchange, posted record revenue that beat analysts’ expectations.
• Mattel Inc. won back the license to produce toys based on Walt Disney Co.’s princesses and the “Frozen” movies.

The latest economic readings showed that sales of new U.S. homes climbed in December to a nine-month high. Meantime, the merchandise-trade deficit unexpectedly widened to a fresh record as imports continued to rise, outpacing shipments overseas.

On the geopolitical front, the U.S. told its citizens to consider leaving Ukraine now given the continuing tensions with Russia and the “unpredictable” security situation in the Eastern European nation. Russian Foreign Minister Sergei Lavrov said the Kremlin will respond to any “aggressive” action by the U.S. as an ally of President Vladimir Putin proposed shipping weapons to separatists. President Joe Biden said he would consider personally sanctioning Putin if he orders an invasion of Ukraine.

What to watch this week:

• South African Reserve Bank rate decision Thursday.
• U.S. initial jobless claims, durable goods, GDP Thursday.
• Euro zone economic confidence, consumer confidence Friday.
• U.S. consumer income, University of Michigan consumer sentiment Friday.

Stocks

• The S&P 500 fell 0.2% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.2%
• The Dow Jones Industrial Average fell 0.4%
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%
• The euro fell 0.5% to $1.1241
• The British pound fell 0.3% to $1.3462
• The Japanese yen fell 0.6% to 114.59 per dollar

Bonds

• The yield on 10-year Treasuries advanced nine basis points to 1.86%
• Germany’s 10-year yield was little changed at -0.07%
• Britain’s 10-year yield advanced three basis points to 1.20%

Commodities

• West Texas Intermediate crude rose 1.3% to $86.75 a barrel
• Gold futures fell 1.9% to $1,819.20 an ounce