U.S. stocks declined on Thursday as Federal Reserve Chair Jerome Powell’s comments suggested the Fed may take a cautious approach to further rate cuts given the economy's current strength.
The Dow Jones Industrial Average dropped 207.3 points, or 0.5% to 43,750.9, the S&P 500 lost 36.2 points or 0.6% to 5,949.2 and the Nasdaq Composite dipped 123.1 points or 0.6% to 19,107.7.
Powell’s remarks in Dallas indicated that the central bank sees no urgency in lowering rates rapidly. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully,” Powell noted.
Fed funds futures dropped to 62.4% likelihood for a 25 basis-point rate cut, down from 82.5% earlier in the day according to the CME Group FedWatch Tool.
The broader market rally also lost steam as the “Trump Trades” softened. Tesla’s shares tumbled 5%, and the Russell 2000 small-cap index dropped 1%, lagging behind the major indexes.
This pullback follows last week’s postelection rally, which saw major indices set new milestones. The Dow closed above 44,000 on Monday for the first time, while both the S&P 500 and Nasdaq Composite hit record highs.
Economic data released Thursday added to investor caution. The October producer price index (PPI) rose 0.2%, matching forecasts, while core PPI, excluding food and energy, exceeded expectations.
Additionally, October’s consumer price index (CPI), reported on Wednesday, showed core CPI rising by 0.3% for the third consecutive month, placing the annual rate at 3.3%. This persistence in core inflation indicates the Fed's goal of curbing inflation remains challenging.
On the bond markets, 10-year and 2-year rates were near four-month highs of 4.451% and 4.353%, respectively.