Dow falls over 250 points as investors await details on Fed plans to shrink balance sheet

Rising yields have put pressure on growth stocks

U.S. stocks were suffering a second day of declines on Wednesday, with technology and other growth shares leading the way lower as investors awaited expected details of the Federal Reserve’s plan to begin shrinking its nearly $9 trillion balance sheet.

What’s happening
  • The Dow Jones Industrial Average DJIA fell 260 points, or 0.8%, to 34,381.
  • The S&P 500 SPX shed 46 points, or 1%, to 4,478.
  • The Nasdaq Composite COMP dropped 215 points, or 1.5%, to 13,990.

On Tuesday, the Dow Jones Industrial Average fell 281 points, or 0.8%, while the S&P 500 declined 1.3% and the Nasdaq Composite slumped 2.3%.

What’s driving markets

Expectations that the minutes of the last Fed policy meeting will reveal its plan to reduce the balance sheet were heightened by a speech on Tuesday from Lael Brainard, the Fed governor who’s been nominated to serve as the central bank’s vice-chair.

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The 10-year Treasury note yield BX:TMUBMUSD10Y is now above the 2-year BX:TMUBMUSD02Y, following a brief period of inversion, as yields rose across the board.

Brainard backed calls for aggressive interest rate increases to bring down inflation while signaling that the Fed was likely to begin shrinking the balance sheet after its next policy meeting in May.

Rising yields have put pressure on growth stocks, which are more sensitive to interest rates, with the Nasdaq slumping most among major benchmarks.

Markets have been resilient in the face of consistently more hawkish rhetoric from Fed officials, but “can only take so much — because the more aggressive the Fed becomes, the greater the chances the Fed kills the economy to stop inflation,” said Tom Essay, founder of Sevens Report Research, in a note.

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“Fed tightening remains the biggest medium- and long-term risk to stocks, and we were reminded of that yesterday” after Brainard’s remarks, he wrote.

Meanwhile, Deutsche Bank became the first big Wall Street bank to make a recession call, with its economists forecasting the U.S. and European economies to suffer such a downturn within the next two years.

Minutes of the Fed’s March meeting are due at 2 p.m. Eastern and are expected to offer details of the central bank’s plans for its balance sheet.

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said the minutes will show that Fed members are more concerned about inflation now than in January. “We would be surprised if anything in the minutes persuades investors to dial back their expectations,” he adds.

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The U.S. and its allies also are expected to tighten up sanctions on Russia, including a U.S. ban on new investments, the White House has said.

Top oil company executives will be in the spotlight Wednesday, appearing at a House hearing on gasoline price gouging.

Original Article

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