People walk past the New York Stock Exchange Wednesday, April 3, 2024 in New York. Healthcare business Solventum started trading at the NYSE on Wednesday. (AP Photo/Peter Morgan)
NEW YORK — U.S. stocks tumbled Thursday after a Federal Reserve official raised the possibility of delivering none of the cuts to interest rates this year that Wall Street has been banking on, if inflation worsens.
The S&P 500 dropped 1.2 percent for its worst day in seven weeks. Earlier in the day, a gain of nearly 1 percent had brought it to the cusp of its record set last week.
The Dow Jones Industrial Average swung 530 points lower, or 1.4 percent, after reversing a rise of nearly 300 points. The Nasdaq composite fell 1.4 percent.
Financial markets were already on edge as traders made their final moves ahead of a jobs report on Friday that could itself shake the market.
A late-day spurt for oil prices amid continued tensions in the Middle East unsettled things, threatening to add more pressure on inflation following oil’s strong gains so far this year.
READ: Oil settles at five-month high, gains capped by jump in US stocks
Around the same time, Treasury yields dropped in the bond market, which can be a signal of investors looking for safer harbors, and a measure of fear among U.S. stock investors leaped.
Stocks slumped after Minneapolis Fed President Neel Kashkari said he’s questioning the need to cut rates if so many areas of the economy look to be solid despite high interest rates.
Rate cuts depend on a ‘lot of ifs’
He had earlier penciled in two cuts to interest rates this year, “but if we continue to see inflation moving sideways, then that would make me question about whether we need to do those rate cuts at all.”
“There’s a lot of momentum in the economy right now.” Kashkari said in an interview with Pensions & Investments.
Kashkari’s hypothetical case, which he said depends on “a lot of ‘ifs,’” cuts at one of the main propellants that drove the U.S. stock market up more than 20 percent from November into March: the expectation for several cuts to interest rates.
Lower rates boost prices for investments, while easing the pressure on the economy, and stock prices had already jumped in part on expectations for them.
Traders had already drastically scaled back their predictions for how many cuts to interest rates the Federal Reserve would deliver this year, down from six at the start of the year to three more recently. That had them in line with Fed officials generally.
READ: Inflation frustration may prompt Fed to dial back rate-cut outlook
But several recent updates on the economy have come in hotter than expected, beyond some disappointingly high inflation reports at the start of the year that could be seen as temporary blips. A report earlier this week showing a surprise return to growth for U.S. manufacturing raised concerns in particular.
Kaskhari is not a voting member on the Fed’s policy-making committee this year, but that doesn’t mean he doesn’t have a voice at the table.
“The market remains highly sensitive to any indication that the data dependent Fed may need to curtail a rate easing cycle this year per Neel Kashkari’s comments this afternoon,” according to Quincy Krosby, chief global strategist for LPL Financial.
Bond yields fall
In the bond market, the yield on the 10-year Treasury fell to 4.30 percent from 4.35 percent late Wednesday. The two-year yield, which moves more on expectations for the Fed, slumped to 4.64 percent from 4.67 percent late Wednesday.
Earlier in the morning, yields had been holding steadier after a report showed more U.S. workers applied for unemployment benefits last week, though the number remains low compared with historical standards.
Wall Street is looking for the job market to cool enough to remove upward pressure on inflation, but not so much that it throws too many people out of work and causes a recession.
That’s raised the anticipation for a report coming Friday, where the U.S. government will show how much hiring happened across the country last month. Economists expect it to show a cooldown in March from February.
READ: US job openings rise slightly; labor market steadily easing
“As always, the monthly jobs report will have the final say,” said Chris Larkin, managing director, trading and investing, at E-Trade from Morgan Stanley.
In the stock market, Nvidia went from a gain of nearly 2 percent early in the day to a drop of 3.4 percent. It was the single heaviest weight on the S&P 500.
Lamb Weston dropped 19.4 percent after the frozen french fry maker said a transition to a new planning system hurt its ability to fill customer orders. It said the impact from the transition has likely passed, but it lowered its sales and profit forecast for the year. It also cited softer trends for restaurant traffic in the near term.
Market winners
On the winning end of Wall Street, Conagra Brands climbed 5.4 percent after the owner of brands like Birds Eye and Duncan Hines reported a milder dip in revenue for the latest quarter than analysts expected. It also delivered a better profit than forecast.
Levi Strauss jumped 12.4 percent after its latest quarterly results likewise topped expectations. It also slightly raised its forecast for profit over the full fiscal year amid a shift to selling more jeans directly to consumers.
All told, the S&P 500 fell 64.28 points to 5,147.21. The Dow Jones Industrial Average dropped 530.16 to 38,596.98, and the Nasdaq composite sank 228.38 to 16,049.08.
In the oil market, a barrel of benchmark U.S. oil climbed $1.16 to settle at $86.59 and is up more than 20 percent already so far this year. Brent crude, the international standard, climbed $1.30 to $90.65.