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Stocks shed gains, Treasury yields jump as Fed signals rate hikes could come 'soon'

EconomyJan 26, 2022 08:56PM ET
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2/2 © Reuters. Men wearing protective face masks walk under an electronic board showing Japan’s Nikkei share average inside a conference hall, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan January 25, 2022. REUTERS/Issei Kato 2/2

By Pete Schroeder

WASHINGTON (Reuters) - U.S. stocks retreated Wednesday, erasing strong gains, after the Federal Reserve signaled an interest rate hike could be coming soon, while supply concerns stemming from tension between Russia and Ukraine saw oil prices touch highs not seen since 2014.

Wall Street ended the day in mixed territory after spending most of the day up roughly 2%. Stocks shed those gains following an afternoon policy update from the Fed and press conference by Fed Chairman Jerome Powell, which suggested the Fed would push forward with interest rate hikes.

The Dow Jones Industrial Average closed down 0.38%, while the S&P 500 fell 0.15% and the Nasdaq Composite gained just 0.02%.

The MSCI world equity index, which tracks shares in 45 nations, was largely flat.

In its latest policy update, the Fed signaled it is likely to raise U.S. interest rates in March and reaffirmed plans to end its bond purchases that month before launching a significant reduction in its asset holdings.

In the follow-up press conference, Powell warned that inflation remains above the Fed's long-run goal and supply chain issues may be more persistent than previously thought. Stocks turned negative during his comments, as some investors bet the Fed would prioritize fighting inflation over ensuring robust economic growth.

"The market took notice of the stress the Fed Chair put on the inflation side of the equation combined with his stressing of the tight labor market. This implies that the Fed could be comfortable with some reduction in the pace of overall economic growth," said Russell Price, chief economist at Ameriprise Financial (NYSE:AMP) Services.

The Fed also said its policy-setting members had agreed on a set of principles for shrinking its balance sheet, set to start sometime after interest hikes begin. The Fed's balance sheet roughly doubled in size during the pandemic to nearly $9 trillion, as it snapped up bonds to help keep longer-term interest rates down to support the economy.

U.S. Treasury yields rose as the Fed issued its update. The U.S. Treasury 2-year yields hit their highest level since February 2020. The benchmark U.S. 10-year yield climbed to 1.8709% shortly after the Fed statement.

The dollar hit a three-week high after the Fed news. The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.58%.

Spot gold prices were down 1.64% to $1,817.31 an ounce.

OIL TOUCHES SEVEN-YEAR HIGH

Growing tension as Russian troops massed on Ukraine's border continued to push oil prices higher amid concerns of supply disruption, with oil clearing $90 a barrel for the first time since 2014.

U.S. President Joe Biden said on Tuesday he would consider personal sanctions on President Vladimir Putin if Russia invaded Ukraine, as Western leaders stepped up military preparations and made plans to shield Europe from a possible energy supply shock.

Brent crude ended up 1.55% to $89.57 a barrel. U.S. crude ended up 1.65% at $87.01 per barrel. (This story corrects headline to clarify that yields jumped)

Stocks shed gains, Treasury yields jump as Fed signals rate hikes could come 'soon'
 

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Comments (9)
Vipal Kashyap
Vipal Kashyap Jan 26, 2022 12:14PM ET
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Funny story...
Tapan Purohit
Tapan Purohit Jan 26, 2022 6:19AM ET
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Tapering tantrum
marlow seay
marlow seay Jan 26, 2022 6:04AM ET
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Powell to save the day
Robert Palumbo
Robert Palumbo Jan 26, 2022 6:03AM ET
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LMAO. Same headlines all weekhas caused a crash but today market is up on it
Dale Wyffels
Dale Wyffels Jan 26, 2022 2:33AM ET
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all markets are controlled by the FED including the VIX, the FED can not raise rates, but can control all markets. Best if you own physical anything
Martijn WN
Speculeerbeer Jan 26, 2022 2:33AM ET
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You think the global markets, and thus the central banks, don't influence the price of gold?
Totaltwo Sam
CryptoSam Jan 26, 2022 2:33AM ET
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Lars Hellman lol who is who?
Chad RicherThanYou
Chad RicherThanYou Jan 26, 2022 1:59AM ET
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Buy Alibaba
Fong SH
Fong SH Jan 26, 2022 1:59AM ET
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Cannot buy Alibaba, will go below HKD100 soon, cheers.
Martijn WN
Speculeerbeer Jan 26, 2022 1:59AM ET
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You should change your name to Mong SH for stating that useless prediction
Fong SH
Fong SH Jan 26, 2022 1:59AM ET
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it's HKD108 today lol, we'll see
Fong SH
Fong SH Jan 26, 2022 1:56AM ET
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China should stop buying USD Bonds, it's not helping China but instead backfiring at China's economy & companies' earnings. China should also consider adding a purchase or retail tax for local citizens buying US products in China. It's a tit for tat since US likes to point fingers at China for all kinds of reasons that US can find. Cheers.
Spectrum xxx
Spectrum xxx Jan 26, 2022 1:56AM ET
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CCP viruses infecting stock portals
kumar parikh
kumar parikh Jan 25, 2022 10:20PM ET
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What will be effect on base metals ?
BiG DaDDy CK
BiG DaDDy CK Jan 25, 2022 9:37PM ET
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When AMZN loses… we all lose :-(
Joel Schwartz
Joel Schwartz Jan 25, 2022 9:37PM ET
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Gross
 
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