Dow, S&P 500 Wobble as Powell Testifies to Congress

US stocks wavered Wednesday after Federal Reserve Chairman Jerome Powell acknowledged that the central bank’s rate-raising campaign could cause an economic downturn.

Investors have been watching closely for signs of how the Fed will proceed in its campaign to bring down high inflation by raising interest rates. Central bank officials agreed last week raise their benchmark interest rate by 0.75 percentage point, their largest increase since 1994.

The S&P 500 notched its worst week since March 2020, but this week has turned higher.

The broad US stock index was flat in afternoon trading, while the Dow Jones Industrial Average slipped less than 0.1%, or about 12 points. The tech-heavy Nasdaq Composite fell 0.1%.

Mr. Powell testified before Congress on Wednesday and is scheduled to testify again on Thursday. In prepared testimony, Mr. Powell said the central bank plans to continue raising interest rates until it sees clear evidence that inflation is slowing to its 2% target.

An economic downturn is “certainly a possibility,” Mr. Powell said Wednesday during the congressional hearing. “We are not trying to provoke and do not think we will need to provoke a recession, but we do think it’s absolutely essential” to curtail inflation.

Separately, Federal Reserve Bank of Philadelphia President Patrick Harker

said Wednesday that the US economy may see a modest contraction in growth, but that he expects the job market to remain strong.

Stocks have gyrated in recent weeks as twin fears—soaring inflation and slowing growth—Hang over markets. The S&P 500 is on track for its worst first half of the year in decades, according to Deutsche Bank analysts. US stocks rallied Tuesday after their worst week since March 2020, offering investors a reprieve from a recent stretch of whipsaw trading that had sent stocks and falling cryptocurrencies.

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Investors sought assets viewed as safer to hold Wednesday, such as US government debt. In bond markets, the yield on the benchmark 10-year US Treasury note declined to 3.155% from 3.304% Tuesday. Yields fall when prices rise.

“Folks are really reckoning with the fact that the probabilities of recession seem to be increasing,” said Gavin Stephens, director of portfolio management at Goelzer Investment Management.

In energy markets, Brent crude, the international benchmark for oil prices, dropped 2.5% to $ 111.74 a barrel, its lowest settle value in a month.

Oil prices have been weighed down by fears that the Fed’s efforts to fight inflation will slow the economy and reduce demand for fuel. Still, energy prices remain near historically high levels as Russia’s invasion of Ukraine has caused Western nations to move rapidly away from Moscow’s supplies.

The subsiding of oil prices from their highs may help stock stabilize in the short term, as investors look for clues that inflation could begin to ease.

“For the stock market to stop going down, we need to catch a break here in terms of inflation,” said Brian Barish, chief investment officer at Cambiar Investors.

The move lower in crude prices dinged shares of energy companies. Occidental Petroleum shares fell 3.2%, while Halliburton shares fell 4.1%. The S&P 500’s energy sector was recently down 3.8% on the day.

Investors are worried that worsening economic data could precede a slowdown in US growth, limiting nonessential spending. Economists surveyed by The Wall Street Journal have substantially raised the probability of recessionnow putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.

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“This narrative of recession is starting to lead the market,” said Sebastien Galy, a macro strategist at Nordea Asset Management.

Concerns about a recession have also hit prices for base metals. Copper fell 2.3% to $ 3.95 a pound, its lowest settle value since February 2021.

US stocks have gyrated in recent weeks as soaring inflation and slowing growth hang over markets.


Photo:

Seth Wenig / Associated Press

“There is certainly an anxiousness in markets and that’s playing through volatility,” said Edward Park, chief investment officer at UK investment firm Brooks Macdonald, adding that investors are likely awaiting fresh inflation data or a central bank meeting to assess their future trades.

The dollar value of bitcoin, the world’s largest cryptocurrency by market value, edged down 3.7% from its 5 pm ET level Tuesday to trade at about $ 20,073, according to CoinDesk. Cryptocurrencies have fallen recently amid broad investor desire to get out of speculative assets and concerns about the future of some crypto companies.

Shares of cryptocurrency exchange Coinbase Global declined 9.7%.

Overseas, the pan-continental Stoxx Europe 600 declined 0.7% In Asia, major indexes closed with losses. South Korea’s Kospi declined 2.7%, China’s Shanghai Composite fell 1.2% and Japan’s Nikkei 225 edged down 0.4%.

Write to Karen Langley at [email protected] and Caitlin Ostroff at [email protected]

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