Market Snapshot: Dow, S&P 500 end lower after Powell says Fed isn’t trying to provoke a recession

How did stock indexes perform?

The Dow Jones Industrial Average
DJIA,
-0.15%
fell 47.12 points, or 0.2% to end at 30,483.13, after trading nearly 300 points higher, according to FactSet data.

The S&P 500
SPX,
-0.13%
fell 4.90 points, or 0.1% finishing at 3,759.89.

The Nasdaq Composite Index
COMP,
-0.15%
shed 16.22 points, or 0.2% to close at 11,053.08.

Following a long holiday weekend, the Dow Jones Industrial Average 
DJIA,
-0.15%
rallied 641.47 points, or 2.2%, to finish at 30,530.25 on Tuesday. The S&P 500 
SPX,
-0.13%
rose 2.5% to 3,764.79, and the Nasdaq Composite 
COMP,
-0.15%
climbed 2.5%, to finish at 11,069.30.

With the Dow’s roughly 16.1% decline so far in 2022 it was on pace for its worst first-half to a year since 1962 when it fell 23.2% in six months, according to Dow Jones Market Data.

What drove the market?

While facing stinging losses in the year’s first half, investors weighed a renewed vow by Fed Chairman Powell on Wednesday to bring down inflation through additional interest rate hikes, while testifying on Capitol Hill.

“The American economy is very strong and well positioned to handle tighter monetary policy,” Powell said, in remarks to a Senate Banking Committee hearing.

Powell also said that a recession was “certainly a possibility,” but not the intended consequence of monetary policy moves.

See: Powell says U.S. economy can handle the additional rate hikes that are coming

“Powell assured markets he will do everything he can to get inflation back down,” said Peter Cardillo, chief market economist at Spartan Capital Securities, by phone. “And it comes at a price. That price is a potential recession.”

But stocks already were “discounting inflation, a recession and a very bleak economic scenario,” Cardillo said. Their next catalyst likely will be fresh corporate earnings reports that emerge in about 15 days, he said, giving investors a better picture of how American businesses are coping with costs of living at a 40-year high.

Sen. Elizabeth Warren, a Democrat from Massachusetts, warned Powell on Wednesday not to make things worse for families. “Inflation is like an illness, and medicine needs to be tailored to the specific problem,” she said. “You could actually tip the economy into a recession.”

Chicago Fed President Charles Evans said on Wednesday that he backs raising the fed fund rate target to a range of 3.25% to 3.5% this year, and to 3.8% by the end of 2023, as the Fed looks to battle inflation.

While stocks were higher, money was flowing into traditional havens such as bonds. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.162%
fell 14.9 basis points to 3.155%, the steepest daily decline since Nov. 21, according to Dow Jones Market Data.

“Throughout the first half of the year, the market has priced in a more aggressive Fed,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company.

Earlier expectations were for a roughly 1% increase to the Fed’s benchmark rate in 2022, but they now have shifted to about 3.5%, he said, by phone. “If you reprice the bond market, you have to reprice the stock market.”

To that end, should inflation and rate-hike expectations stabilize, or move lower in a mild-recession scenario, Schutte sees room for stocks to find a higher footing heading into year-end. “You are almost cheering for an economic pullback to get inflation under control,” he said.

Stocks briefly rose to session highs after President Joe Biden on Wednesday called on Congress to suspend the federal gasoline tax for three months, while also asking states to provide similar relief and for the U.S. to ramp up its refinery activity.

The federal government charges an 18 cent tax per gallon of gasoline and a 24 cent tax per gallon of diesel. A “gasoline tax holiday, while supporting consumers, would support demand, thereby prolong the period of tightness,” said Ole Hansen, head of commodity strategy at Saxo Bank, in a note to clients.

U.S. crude oil prices
CL00,
-4.77%
dropped 3% to settle at $106.91 a barrel, a six-week low.

Which companies were in focus?

Altria Group Inc.
MO,
-9.19%
shares fell 9.2% lower after a report that the Food and Drug Administration is preparing to order Juul Labs Inc. to take its e-cigarettes off the U.S. market.

Revlon Inc.
REV,
+34.32%
shares were up 34.3% Wednesday, continuing their recent “meme”-like rocket ride higher, with individual investors driving a buying frenzy in shares of the embattled cosmetics and hair-care company.

Chef’s Warehouse Inc.
CHEF,
+5.13%
shares rose 5.1% Wednesday after it raised its full-year guidance. The North American specialty foods provider expects sales in the range of $2.325 billion to $2.425 billion, up from a range of $2.13 billion to $2.23 billion previously.

Shares of Athira Pharma Inc.
ATHA,
-66.27%
plunged 66.3% Wednesday after the company said an exploratory Phase 2 study assessing its experimental treatment for patients with mild-to-moderate Alzheimer’s disease did not meet the primary endpoint. 

Dow Inc.
DOW,
-4.75%
shares sank 4.8% Wednesday after Credit Suisse analyst John Roberts recommended investors sell, citing concerns the specialty chemicals company is likely to be hurt as supply chains normalize.

How did other assets trade?

The ICE U.S. Dollar Index 
DXY,
-0.22%,
 a measure of the currency against a basket of six major rivals, fell 0.2%.

Gold futures 
GC00,
+0.05%
 fell less than 0.1% to settle at $1,838.40 an ounce.

The Stoxx Europe 600 
SXXP,
-0.70%
 fell 0.7% while London’s FTSE 100 
UKX,
-0.88%
 declined 0.9%.

The Shanghai Composite 
SHCOMP,
-1.20%
fell 1.2%, while the Hang Seng Index
HSI,
-2.56%
dropped 2.6% and Japan’s Nikkei 225 
NIK,
-0.37%
slipped 0.4%.

—Barbara Kollmeyer contributed reporting to this article