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Wall Street suffered a major setback on Friday, with stocks plummeting in the wake of comments from Federal Resrve Chairman Jerome Powell, who warned that the fight against inflation could lead to "some pain" for the economy. The retreat saw the Dow drop more than 1,000 points and the Nasdaq record a decline of nearly 4%.
The Nasdaq (COMP.IND) -3.9%, the S&P 500 (SP500) -3.4% and Dow (DJI) -3%.
The Dow Jones dropped 1,008.38 points to close at 32,283.40. The S&P 500 slumped 141.46 points to end at 4,057.66. The Nasdaq concluded trading at 12,141.71, a slide of 497.56 points.
All 11 S&P sectors posted losses on the day. Info Tech led the retreat, falling 4.3%. Communication Services and Consumer Discretionary also showed particularly deep declines, with both sliding about 3.9%.
Powell's hawkish remarks were delivered at a Fed symposium in Jackson Hole, Wyoming. While the speech itself had little new of substance, investors were scared by the Fed chief's stark rhetoric.
"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," the head of the U.S. central bank said. "These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."
In the bond market, rates advanced immediately after the remarks but gave up most of those gains through the day. The 10-year Treasury yield (US10Y) edged up two basis point to 3.04%. Meanwhile, the 2-year yield (US2Y) advanced two basis points as well, climbing to 3.39%.
"No pivot," RSM economist Joseph Brusuelas tweeted of Powell's remarks. "Rather the underlying message was lift & hold is the policy path that all of us now need to adjust. In an environment of insufficient aggregate supply this is the way."
While "the Fed clearly does need to continue tightening policy, policymakers will want to be very careful to not unnecessarily derail some of these longer-term positive trends," BlackRock's Rick Rieder said.
He added: "Today we find ourselves in an environment in which corporate investment is slowing and the housing market is cooling; engineered by higher prices, tighter policy and economic uncertainty, so the Fed by the end of the year will set up to merely sit back, relax like a vacationer today, and merely watch how the long and variable lags work through the system."
In economic news, personal income and spending numbers for July came in with personal spending +0.1% M/M vs. the anticipated +0.4%. At the same time, personal income and outlays were +0.2% M/M versus the expected +0.6%. PCE Price Index figures showed -0.1% M/M vs. the +0.1% forecast. Core PCE Price Index was up a cooler-than-expected 0.1%.
"Nominal incomes are rising on the back of robust increases in payrolls and wages, but the 0.2% July number is suspiciously low; an upward revision seems a decent bet," Pantheon Macro said. "But the big story here is that real incomes rebounded by a solid 0.3%, the biggest increase in a year, as plunge in gas prices and a very small rise in core prices meant that the PCE deflator fell by 0.1%."
In other econ news, retail inventories advanced by +1.1% in July to $730.7B compared to the +1.9% prior figure.
Meanwhile, the University of Michigan reported a surprise bounce in its final measure of consumer sentiment to 58.2, with year-ahead inflation expectations coming in below forecast.
Among active stocks, video game makers Electronic Arts and Take-Two were among the few strong performers in the S&P on an unconfirmed rumor that Amazon is looking at buying EA.