Stocks fall for a third day on concerns central banks will hike rates further, Dow down 300 points

Stocks fell for a third day, threatening a comeback in summer markets as the Federal Reserve and other global central bankers continued to signal they would raise interest rates to dampen inflation despite the negative impact on economic growth and potentially corporate earnings .

The S&P 500 fell 1.2% below the 4,000 mark, while the Nasdaq Composite lost 1.4%. Meanwhile, the Dow Jones Industrial Average slipped 313 points, or 1%. The S&P 500 fell more than 3% on Friday following anti-inflationary comments from Fed Chair Jerome Powell and continued to fall this week. The benchmark’s comeback from its mid-June low has been reduced to 9%.

The latest comments came from New York Fed President John Williams on Tuesday. “I think since demand far outstrips supply, we need to get real interest rates … above zero. We need some tightening policies to curb demand and we’re not there yet,” Williams told the Wall Street Journal.

“We’re a long way from that,” he added.

Williams’ comments follow similar views expressed by European Central Bank policymaker and Estonian central bank governor Madis Muller, who on Tuesday said the central bank should discuss a 75 basis point rate hike in September amid exceptionally high inflation.

Short-term interest rates continued their upward trend as investors bet on further rate hikes. The 2-year Treasury yield reached its highest level in almost 15 years.

“Markets are fragile and reception is hawkish [by the Fed Friday] shows that they are trying to make it crystal clear that the Fed pivot is not in sight and they will continue to have inflation as their top priority,” said Stephanie Lang, Homrich Berg’s chief investment officer. “This narrative is going to continue to pressure the market. We’re just going to have a lot of volatility… until the end of the year.”

She added that all eyes are on Friday’s jobs report, but a strong number would only mean more of the same rhetoric from the Fed on its commitment to cutting inflation.

“We’re at a difficult point, but I don’t think any particular data point will ease the market,” Lang said. “You need to see the actual inflation data continue to move lower for several months for the Fed to feel any reassurance.”

Energy prices fell on Tuesday, with West Texas Intermediate futures, the US oil benchmark, falling more than 5.4%. Natural gas futures also collapsed.

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