Dow falls 500 factors after Powell sparked a surge in returns, S&P 500 and Nasdaq flip pink over the course of the 12 months

US stocks fell sharply on Thursday after Fed chairman Jerome Powell failed to reassure investors that the central bank would continue to hold rising bond yields and inflation expectations in check.

The S&P 500 was last down 2.5%, erasing previous gains, while the Dow Jones Industrial Average was down 560 points. The Nasdaq Composite fell 3% as growth stocks came under pressure from rising interest rates. Apple was down more than 2% while Tesla was down 5.7%. The heavy losses drove the S&P 500 and Nasdaq into the red for the year.

The Nasdaq also fell into correction territory, down more than 10% from its recent daily high.

Powell said the economic reopening may “put some upward pressure on prices”. While Powell acknowledged that the rapid rise in interest rates had recently caught his attention, he said the Fed needs to see a broader spike in the interest rate spectrum before it can consider action, he said during the Wall Street Journal Jobs Summit Thursday.

The Fed chief reiterated that the central bank would be “patient” before changing its policy, even if it sees inflation rising in any temporary manner it expects. Powell added that price increases above the Fed’s 2% target for a few quarters or more would not cause consumer long-term inflation expectations to change significantly.

Government bond yields, which have kept investors posted over the past few weeks, rose to 1.54% on Powell’s remarks. Last week, the 10-year benchmark return rose to a high of 1.6% in a sudden move that triggered a large sell-off in stocks. Yields generally fell back again this week before rising above 1.5% on Thursday, according to Powell’s comments.

Yields rose as some investors may be disappointed that Powell did not make a strong suggestion of changes in asset purchases by the Fed in an attempt to contain the recent rapid rise in interest rates. Expectations grew. As in the past, the Fed could conduct an “Operation Twist” operation of selling short-term bills and buying longer-term bonds.

“This was a minor drawback as it didn’t provide the kind of reassuring comment investors were hoping for,” said Adam Crisafulli, founder of Vital Knowledge, in a note. “He wasn’t sure what specific action would be taken if the Fed believed that yields were rising to excessive levels (he was given some opportunities to advocate changing the QE duration, but never did) . “

Gold fell 1% on Powell’s comments.

The volatility also came after a better than expected reading of weekly jobless claims. Initial jobless claims for the week ending February 27 totaled 745,000, a touch below the Dow Jones estimate of 750,000, the Department of Labor reported Thursday.

“We’re back to good news (for the economy), bad news (for the market), and as interest rates rise in anticipation of better economic growth, it has hurt the stock market,” said Chris Zaccarelli, chief investment officer, Independent Advisor Alliance said in a note.

Stocks posted heavy losses on Wednesday, led by technology as rising bond yields raised concerns about higher inflation and market valuations. The Nasdaq Composite is down 3.7% this week on its way to its third consecutive negative week – the longest weekly streak since September.

Some believe that additional stimulus measures could add optimism to the market. The Senate is currently debating the $ 1.9 trillion aid package that Parliament passed on Saturday. President Joe Biden sponsored a plan to lower the income caps for Americans in order to receive stimulus checks.

“Our macro team sees the economy as spring-loaded given the vaccinations and additional incentives,” wrote Keith Lerner, Truist’s chief market strategist, in a message to customers. “The consumer’s ability and desire to spend on services and experiences should result in the best economic growth we’ve seen in over 35 years.”

Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.