Dow Jones Dives 500 Points As Powell Speech Slams Stock Market, Boosts Bond Yields

The Dow Jones Industrial Average shed nearly 500 points Thursday, after Fed Chief Jerome Powell’s speech boosted bond yields and sent stocks tumbling.

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The Nasdaq dived 2.4%, the S&P 500 sank 1.6% and the Dow Jones industrials lost 1.5% in the stock market today. Small caps tracked by the Russell 2000 plunged 2.9%. Volume was higher on both major exchanges vs. the same time Wednesday.

Stocks were mixed after a better-than-expected jobs report showed 745,000 jobless claims filed the week ended Feb. 27. While that rose from the prior week’s revised 736,000, it was lower than Econoday’s forecast for 760,000.

But key indexes turned sharply lower midday, after Federal Reserve Chairman Jerome Powell said he expects economic reopening to cause inflation. But he said price increases likely won’t be significant enough to lead to higher interest rates.

“We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects,” he said at the Wall Street Journal Jobs Summit. “That could create some upward pressure on prices.”

Following his comments, stocks headed south as the 10-year Treasury yield jumped to session highs above 1.53%. The yield briefly topped 1.6% last week.

Under Pressure

Tech stocks boosted the Nasdaq to a 43.6% gain in 2020 for its fifth best year ever. The S&P 500 rose 16.3% and the Dow added 7.2% last year. After a strong start this year, the market uptrend is under pressure. Read The Big Picture for detailed daily market analysis.

The Covid-19 pandemic continues to roil the U.S. economy, as nationwide lockdowns approach the one-year mark. But there are signs of hope as vaccinations roll out and cases start to plateau in some states.

Cumulative Covid-19 cases worldwide are approaching 116 million with nearly 2.6 million deaths, according to Worldometer. In the U.S., cases have topped 29.4 million with more than 531,000 deaths, although the number of new cases in the U.S. has slowed dramatically in recent weeks.

Dow Winners And Losers

Chevron (CVX) rallied more than 3% in twice its normal trade to a 52-week high, before paring gains. Shares are well-extended from a 95.92 buy point of a flat base, according to MarketSmith chart analysis. But Chevron stock’s 22 Composite Rating and 8 Earnings Per Share Rating leave much room for improvement.

Oil stocks led the upside among IBD’s industry groups as West Texas intermediate crude leapt 5.5% to $64.63 a barrel. Prices surged after the Organization of the Petroleum Exporting Countries and key partners said at a Thursday meeting that they will extend most of the current output cuts.

Among other Dow winners, UnitedHealth (UNH) rose 1%, while Coca-Cola (KO) held a fractional gain.

Blue-chip losers included Home Depot (HD), Disney (DIS) and Johnson & Johnson (JNJ), which all fell 2% or more.

Disney fell 3%, on pace to extend losses for a third straight session. On Wednesday, the media and theme-parks giant said it will close at least 20% of its Disney store locations by the end of the year, including at least 60 in the U.S. It plans to focus more on e-commerce.

Disney stock slipped back into buy range from a 183.50 entry of a flat base. But with the market uptrend under pressure, all purchases are riskier.

Outside The Dow

Aside from oil, utilities and food and beverage stocks advanced as defensive plays outperformed. Software, chip, automaker and computer stocks lagged.

In the automaker group, Tesla (TSLA) skidded more than 6% in fast turnover, on track to extend Wednesday’s 5% drop. Last week, Tesla stock broke support at its 10-week moving average, triggering a sell signal.

While the stock remains extended from a 466 buy point of a cup with handle, the break of support was the electric-vehicle maker’s second sell signal. In February, it tripped the 7%-8% loss-sell rule. So taking some profits may be prudent. Tesla is an IBD Leaderboard stock.

Among other automaker stocks, Nikola (NKLA) lost 6%, while China EV makers Nio (NIO), Xpeng (XPEV) and Li Auto (LI) fell more than 3% each.

The Innovator IBD 50 ETF (FFTY) got slammed amid the growth stock sell-off, tumbling nearly 6%. The biggest losers included Digital Turbine (APPS), 360 DigiTech (QFIN) and SciPlay (SCPL), which dived more than 9% each.

Google parent Alphabet (GOOGL), up 0.3%, was one of the few gainers. The stock recently completed a three-weeks-tight pattern with a 2,145.24 buy point. It’s about 6% off its high.

Follow Nancy Gondo on Twitter at @IBD_NGondo

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