Dow loses 381 points as stocks shed early gains
U.S. stocks erased early session gains Wednesday, as volatility returned to Wall Street ahead of Fed Chair Jerome Powell’s second appearance on Capitol Hill this week.
The Dow Jones Industrial Average slipped 380.83 points, or 1.5%, to 25,029.20. The S&P 500 Index fell 30.45 points, or 1.11%, to 2,713.83, and the Nasdaq Composite lost 57.35 points, or 0.78%, to 7,273.01.
The Dow traded in a 550-point range. The CBOE Volatility Index, which measures price swings in the market, jumped 8.5% in afternoon trading.
Investors are closely watching the Federal Reserve and Powell, the central bank’s newly installed chairman, for signs that interest rate hikes could accelerate amid strength in the U.S. economy. Powell testified Tuesday before a House committee on the outlook for inflation and interest rate increases, saying wages are on pace to pick up this year. He will appear before the Senate Banking Committee on Thursday.
The Fed has indicated that it could hike the federal funds rate three times in 2018. Powell’s first congressional testimony this week fueled speculation that additional rate increase are possible.
“New Fed chief Jerome Powell didn’t deviate from the script when he met with US lawmakers yesterday saying that the US central bank could continue to raise interest rates gradually against a strong and improving economic outlook, and with little in the way of concern about recent market volatility,” said Michael Hewson, chief market analyst at CMC Markets.
“His comments that some of the headwinds facing the US economy were now acting as tailwinds suggests that the Fed is comfortable that inflation is likely to head back towards its 2% target, and as such the bar to further rate rises is likely to be quite high.”
The price of the benchmark U.S. crude oil was down 2.17% to $61.64 per barrel.
Wednesday’s second read on 4Q gross domestic product came in at the expected 2.5%. That’s a bit slower than the initial estimate of 2.6% reported last month, and down from a vigorous 3.2% pace of growth in the third quarter. The downward revision to 4Q GDP is mostly due to a smaller inventory build than previously reported. Economists are hoping the economy will hit President Trump’s 3% annual growth target this year, which could prompt the Fed to be more aggressive in raising interest rates to keep inflation at bay.
Retail earnings are in focus. Lowe’s, the No. 2 U.S. home improvement chain, reported sales growth that topped analyst estimates. Income fell to $554 million, 67 cents a share.
In Europe, shares fell, London’s FTSE was down 0.31%, France’s CAC was off by 0.32% and Germany’s DAX fell 0.26%.
In Asia, stocks closed down as weak manufacturing data from China renewed concerns about that country’s economic health.