Market Snapshot: Dow, S&P 500 book sharpest declines in nearly 2 weeks after Fed’s Powell signals half-point interest rate hike likely in May

What happened

• The Dow Jones Industrial Average
  DJIA,
  -1.05%
  shed 368.03 points, or 1.1%, to end at 34,792.76. Its more than 700-point intraday swing was its biggest since March 8, according to Dow Jones Market Data.

• The S&P 500
  SPX,
  -1.48%
  fell 65.79 points, or 1.5%, closing at 4,393.66.

• The Nasdaq Composite
  COMP,
  -2.07%
  lost 278.41 points, or 2.1%, finishing at 13,174.65 after trading as high as 13,710.70 in early action.

On Wednesday, stocks turned in a mixed performance, with the Dow rising 250 points, or 0.7, while the S&P 500 shed less than 0.1% and the Nasdaq Composite dropped 1.2%.

What drove markets

Stocks swung sharply lower in afternoon action after Federal Reserve Chairman Jerome Powell added his support for moving faster on raising interest rates to cool inflation, including through a potential 50 basis point hike in May.

“It is appropriate in my view to be moving a little more quickly,” Powell said, during a discussion hosted by the International Monetary Fund in Washington D.C.

As stock losses intensified, the S&P 500 and Dow each recorded their worst daily percentage declines since April 11, while the Nasdaq’s 2.1% drop was its biggest since April 14, according to Dow Jones Market Data.

Powell’s speech also put focus back on high inflation, and the Fed’s response, even as investors monitored the latest batch of quarterly earnings.

“There are just a lot of different sources of concern and uncertainty that are facing markets,” said Garrett Melson, portfolio strategist with Natixis Investment Managers Solutions, by phone.

“The key issue is inflation, and also the path of monetary policy,” Melson said. Until investors have more clarity on both fronts, he anticipates it won’t take much to spark selloffs in stocks.

He also sees scant chance of quarterly earnings results driving a significant “rally from here,” but that they could put in a floor for equity prices, he said.

Tesla
TSLA,
+3.23%
shares advanced 3.2% after the electric vehicle maker posted better-than-forecast earnings, with the help of price hikes.

The Tesla results helped to offset the earlier shock from fellow megacap technology giant Netflix Inc.
NFLX,
-3.52%,
which slumped 35% on Wednesday after forecasting it will lose 2 million subscribers in the current quarter. Netflix shares fell another 3.5% on Thursday.

See: Netflix shares extend fall after Bill Ackman dumps stake and New Constructs predicts another 50% decline

Earnings reporting season is off to a strong start overall, with nearly 80% of companies that have reported so far topping profit forecasts, noted Mark Haefele, chief investment officer at UBS Global Wealth Management. While only 13% of S&P 500 companies have reported so far, resilience is likely to continue, he said, with earnings per share likely to grow by around 10%.

“But with heightened uncertainty over the pace of monetary tightening and the war in Ukraine, we recommend a neutral stance on equities overall,” Haefele said, in a note. “First quarter results so far highlight our view that investors need to be selective, focusing on sectors and themes with the potential to outperform.”

The euro
EURUSD,
+0.04%
and German bond yields
TMBMKDE-02Y,
0.209%
rose after multiple ECB officials suggested the first eurozone rate hike of the cycle could come as early as July. The benchmark 10-year Treasury yield
TMUBMUSD10Y,
2.844%
rose about 8.1 basis points to 2.917%, the highest since Dec. 4, 2018.

In U.S. data, first-time claims for unemployment benefits fell to 184,000, down 2,000, in the week ended April 16, the Labor Department said. The Philadelphia Fed’s regional manufacturing index fell to 17.6 in April from 27.4 a month earlier.

Companies in focus

• In a securities filing, Tesla Chief Executive Elon Musk said he had received commitment letters to provide $46.5 billion in funding for his offer to buy out social-media platform Twitter Inc.
  TWTR,
  +0.77%.
  Twitter shares rose 0.8%.

• Shares of United Airlines Holdings Inc.
  UAL,
  +9.31%
  jumped 9.3% after executives late Wednesday said they expect to report a profit this year, surprising investors. American Airlines Group Inc.
  AAL,
  +3.80%
  shares gained 3.8% after the air carrier reported a narrower-than-expected first-quarter loss and revenue that more than doubled to beat forecasts, and provided an upbeat sales outlook. The popular U.S. Global Jets ETF
  JETS,
  +2.80%
  rose 2.7%.

• Blackstone Inc.
  BX,
  -6.45%
  shares shed 6.5% after reporting distributable earnings that beat expectations.

• Carvana Co.
  CVNA,
  -10.12%
  shares fell 10.1% after the used-car retailer said that both industry-wide and company-specific issues affected its business in the first quarter but said that it had plans to address its challenges.

• Xerox Holdings Corp.
  XRX,
  -15.67%
  shares dropped 15.7% after the maker of copiers and printers swung to a loss in the first quarter, hamstrung by supply chain issues and inflationary pressures.

How did other assets trade

• The ICE U.S. Dollar Index
  DXY,
  +0.22%
  rose 0.2%.

• Bitcoin
  BTCUSD,
  +0.06%
  fell 0.1% to $41,215.

• The Stoxx Europe 600
  SXXP,
  +0.32%
  closed up 0.3%, while London’s FTSE 100
  UKX,
  -0.02%
  ended flat.

• The Shanghai Composite
  SHCOMP,
  -2.26%
  fell 2.3%, while the Hang Seng Index
  HSI,
  -1.25%
  lost 1.3% in Hong Kong and Japan’s Nikkei 225
  NIK,
  +1.23%
  rose 1.2%.

—Steve Goldstein provided additional reporting