The stock market slipped today after comments from Federal Reserve chairman Jerome Powell spooked some investors. This has left investors wondering: Why are stocks down today?
Well, this afternoon Powell offered some words in his annual Jackson Hole speech. While it was in fact one of the shortest Jackson Hole addresses in the past few years, its brevity didn’t lessen its impact. Powell first stated one month of zero added inflation is not enough to curb the central bank’s hawkish agenda. Indeed, some investors hoped last month’s 0% price growth would push the Fed to back off its tightening procedure, a lofty thought.
Powell also warned there may be “some pain” in the U.S. economy as the Fed weighs yet another interest rate hike in its September meeting. Compared to rampant inflation however, Powell makes it clear this is the preferred alternative:
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
What happened with the stock market following Powell’s speech?
Why Are Stocks Down Today?
The Dow Jones Industrial Average lost more than 600 points following Powell’s speech, equivalent to a 1.8% drop. It seems investors were a bit startled by the notion of further rate hikes — especially a large-magnitude, 75-basis-point rate increase, which is looking increasingly likely based on CME Group’s FedWatch tool.
The Fed raised its benchmark rate by 75 basis points in both June and July, the largest consecutive increases since the central began using the rate as its primary monetary tool in the 1990s.
The Dow wasn’t alone, however. The S&P 500 and Nasdaq Composite both saw substantial losses for the day, down 3.4% and 3.9%, respectively. This will mark the second straight week of declines for the primary U.S. stock market indices.
Heading into the Fed’s September meeting, it’s clear whatever decision the central bank lands on will have cascading effects up and down equity markets.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
