Dow industrials see worst day in 2 weeks as oil prices spike, more Fed officials call for half-point rate hikes

What drove the market?

U.S. stocks tumbled further into the closing bell, after oil prices jumped, new home sales dipped in February, and more Fed officials warned that interest rates could be more aggressively increased this year to help cool inflation.

U.S.
CL00,
+0.99%
and Brent crude
BRN00,
+1.17%
rose more than 5% each, with the U.S. benchmark settling at $114.93 a barrel, its highest finish since March 8.

Oil prices likely were “at least partially responsible for yesterday’s strength [in U.S. stocks] and today’s weakness,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research.

“Crude oil and the SPX have a rather visible inverse correlation year-to-date,” Frederick said.

Meanwhile, Cleveland Fed President Loretta Mester said Wednesday that the central bank will need to do “some” 50 basis point rate hikes this year, but that markets also can handle higher rates and the start of balance sheet reduction at same time. Mester and San Francisco Fed President Mary Daly backed up earlier hawkish remarks this week by Fed Chairman Jerome Powell, who said interest rates may be increased by more than a quarter percentage point, if needed to rein in inflation.

“While everybody has been focused on the Fed, I think the real milestone for equity investors comes in three week’s time, when we start getting first quarter earnings reports,” said Wayne Wicker, chief investment officer at MissionSquare Retirement, by phone.

“It will give you some estimates of the damage done in terms of growth estimates for Corporate America,” Wicker said, pointing to the potential impact of labor shortages, higher wage costs, and elevated commodity prices on earnings. “That’s the next point for investors to assess whether or not valuations for stocks are reasonable.”

U.S. new-home sales fell 2% to an annual rate of 772,000 in February, Census Bureau said Wednesday. Economists polled by MarketWatch expected new-home sales in February to drop to an annual rate of 805,000.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
2.324%
fell 5.5 basis points to 2.32%, after hitting the highest levels since mid-2019. U.S. stocks have shrugged off the fresh spike in yields seen over the past two weeks, “suggesting that the Fed is still badly behind the curve if its intention is a significant tightening of financial conditions,” said the Saxo Bank strategy team in a note to clients.

The central bank and the market may be “locked into a dangerous battle, with the Fed prepared to continue turning the screws until something ‘breaks,’” the analysts said.

Investors also were watching the four week war in Ukraine where Russia is increasingly bogged down in a costly and uncertain military campaign, with untold numbers of dead, encircled by western sanctions that are biting hard on its economy and currency.

President Biden is headed to Europe for four days to attend meetings of NATO, the G7 and the EU in Brussels and Warsaw this week and to strategize on how to keep Russia’s Ukraine invasion from spiraling into an even larger crisis. He’s also expected to announce more sanctions to punish Russia, and ways to continue pressuring China from coming to that country’s aid.

Which companies were in focus?

• GameStop
  GME,
  +14.50%’s
  chairman Ryan Cohan has bought 100,000 more shares in the meme stock, pushing his holding up to 11.9%, according to a regulatory filing late Tuesday. The company’s shares rose 14.5% Wednesday, a day after jumping 30.7%. 

• Medical marijuana company Cresco Labs
  CRLBF,
  -7.51%
  reached an agreement on Wednesday to acquire Columbia Care
  CCHWF,
  -1.92%,
  a fellow Canadian cannabis company, for $2 billion. The companies said the deal will create the largest U.S. multi-state operator in the U.S based on pro-forma revenue. 

• Moderna
  MRNA,
  -4.28%’s
  COVID-19 vaccine works for kids under 6 years old, the company said Wednesday. The company will seek an emergency use authorization from regulators in the U.S., Europe and elsewhere for the vaccine in babies, toddlers and preschoolers, it said. Moderna’s shares dropped 4.3%.

How did other assets fare?

• The ICE U.S. Dollar Index
  DXY,
  +0.16%,
   a measure of the currency against a basket of six major rivals, rose 0.2%.

• Gold futures 
  GC00,
  +0.39%
  settled higher, with gold for April delivery 
  GCJ22,
  +0.39%
   rising 0.8% to $1,937.30 an ounce, near its 1-week high.

• Bitcoin 
  BTCUSD,
  +1.08%
  turned negative, down 0.3% to trade around $42,285.

• In European equities, the Stoxx Europe 600 
  SXXP,
  -1.01%
  shed 1%, while London’s FTSE 100 
  UKX,
  -0.22%
  declined 0.2%.

• In Asia, the Shanghai Composite 
  SHCOMP,
  +0.34%
  closed 0.3% higher, the Hang Seng Index 
  HSI,
  -0.68%
   jumped 1.3% in Hong Kong and Japan’s Nikkei 225 
  NIK,
  -1.41%
   gained 3%.

—Barbara Kollmeyer contributed reporting