Stocks extend losses as investors weigh hawkish Powell remarks, more

U.S. stocks plummeted Friday afternoon as investors weighed a bevy of corporate earnings and braced for more aggressive monetary tightening by the Federal Reserve in coming months.

The S&P 500 plunged 2.5%, while the Dow Jones Industrial Average wiped out 860 points, on pace for its worst day of the year if losses extend into the close. The tech-heavy Nasdaq Composite tumbled 2.2%. Meanwhile, the 10-year U.S. Treasury yield remained at 2.9%, the highest level since December 2018.

“Markets are very uneasy about the growing likelihood of a policy error by the Federal Reserve,” Harris Financial Group Managing Partner Jamie Cox said in a note. “When a Fed official suggests a 50 basis points hike, markets immediately start trying to price in 75 basis point hikes — it’s madness really.”

The losses follow remarks from Fed Chair Jerome Powell at a panel hosted by the International Monetary Fund Thursday signaling a 50-basis point rate increase was “on the table” for May, when the U.S. central bank holds its next policy-setting meeting. The Fed chair also reiterated that policymakers were committed to “front-end loading” inflation-fighting efforts.

“Today’s market action reflects the power of Jerome Powell’s comments yesterday, that the Fed is determined to slay climbing inflation and virtually acknowledging that the market can expect a 50 basis point hike in May,” LPL Financial chief equity strategist Quincy Krosby said in comments Friday.

Addressing European Central Bank President Christine Lagarde and other officials on Thursday, Powell said the Federal Reserve was committed to getting 2% inflation back, referring to the Fed’s target for annual price increases.

“We’re definitely in the cards for a 50 basis point rate hike in the May meeting,” Capital2Market President Keith Bliss said on Yahoo Finance Live.“The market is pretty good at dictating, if not indicating, where this is going to go.”

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With the headline Consumer Price Index at its highest level in four decades, the U.S. Federal Reserve has recently signaled aggressive monetary tightening is underway to rein in rising price levels despite warnings from experts that moving too quickly could result in an economic contraction.

“The big question is whether the earnings can really sustain this kind of a macro backdrop of slower growth and Fed policy,” Deutsche Bank Wealth Management Chief Investment Officer Deepak Puri said on Yahoo Finance Live earlier this week. “It seems certain companies can — historically that’s been the case. What’s different this time is really the trifecta, which is higher costs of capital, quantitative tightening, plus a lack of … a big fiscal stimulus.”

Despite worries from Wall Street over the next policy moves and the risks posed to traders, a readout of the Federal Reserve’s recently published Beige Book suggests Main Street sentiment remains positive overall.

Strategists at LPL Research said the Beige Book Barometer may provide…