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Dow Falls About 400 Points, on Track for Worst Week Since January

The Dow industrials fell more than 500 points after Fed official James Bullard said he expects the first rate increase in late 2022

6/18/2021 6:06:00 PM

The Dow industrials fell more than 500 points after Fed official James Bullard said he expects the first rate increase in late 2022

The Dow fell about 400 points after Federal Reserve official James Bullard said he expects the first interest rate increase in late 2022.

Updated June 18, 2021 11:37 am ETU.S. stocks retreated Friday, putting the Dow on track for its worst weekly performance since the end of January as traders warily eyed the Federal Reserve for hints of where monetary policy is headed.The Dow Jones Industrial Average lost 1.2%, or roughly 400 points. The

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index of blue-chip stocks had dropped 1.9% this weekthrough Thursday, leaving it poised for its worst showing since it retreated almost 3.3% in the last week of January.The S&P 500 declined 1%. The benchmark index is on track to end a three-week streak of gains. The Nasdaq Composite also ticked 0.9% lower, as large technology stocks also fell.

Policy makers signaled Wednesday that they expect to raise interest rates by late 2023, sooner than they had previously anticipated. Sentiment waned again on Friday after Federal Reserve Bank of St. Louis leader James Bullard said on CNBC that heexpects the first rate increase headtopics.com

even sooner, in late 2022.The Fed has faced more inflation than it expected, and policy makers need to be nimble, he added. But it will take several Fed meetings to organize the debate over tapering its bond-purchase program, he said.It isn’t surprising that equities are falling, said ThinkMarkets analyst Fawad Razaqzada. U.S. stocks have hit a series of record highs and have been outpacing the economic recovery since last year. Now traders are repricing that “reflation trade” as they watch the Federal Reserve slowly start to alter its stance on monetary policy.

“It was coming” he said. “This kind of selloff was coming because the market got ahead of itself.”The Cboe Volatility Index, known as Wall Street’s “fear gauge,” climbed to its highest level since late May.“The markets will be more spooked by 2022 turning to a rate hike, because that will mean they have to taper as well,” said Derek Halpenny, head of research for global markets in the European region at MUFG Bank.

In bond markets, the yield on the 10-year Treasury note flipped between gains and declines. It was at 1.47% Friday morning,down from 1.509%Thursday. Yields fall when prices rise.Investors had already gained some confidence that the Fed would act to curb rising inflation after policy makers signaled Wednesday that they

expect to raise interest rates by late 2023. That started to take the steam out of a recent rally in stocks linked to a broad economic recovery, leading to a retreat in banking and energy shares this week.“If the Fed tapers bond purchases and it raises rates, then all of a sudden the inflation dragon gets tamed,” said Gregory Perdon, co-chief investment officer at private bank headtopics.com

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Arbuthnot Latham.Some investors are also booking profits after a strong monthslong rally that has left the S&P 500 just shy of its record close on June 14.Expectations for higher rates have started to take the steam out of a recent rally in stocks linked to a broad economic recovery, leading to a retreat in banking and energy shares this week. All 11 of the S&P 500’s sectors were falling, with financials off more than 2%. Consumer staples and utilities were both off more than 1%.

“Given that a lot of investors are sitting on huge gains, the temptation is to reduce risk,” said Luca Paolini, chief strategist at Pictet Asset Management. “When you have the combination of expensive valuations and changes in Fed policies, it is better to lock in gains.”

Friday also marks the occurrence of so-called quadruple witching in markets, when four types of financial contracts expire on the same day: futures and options linked to individual stocks and to stock indexes.Shares ofAdobeadded 2% after the creative-software company’s financial guidance for the current quarter beat Wall Street projections.

Mr. Perdon said he expects inflation to creep higher in the near term, due to supply-chain bottlenecks, chip shortages, strong demand for goods and services and easing pandemic restrictions. Stocks are still likely to advance, he said.“The Fed hasn’t done anything yet. All they have done is signal, and they are a long way off from doing anything,” Mr. Perdon said. “Markets are supported by the trifecta of monetary and fiscal policy and the vaccine rollout. Markets may face a reckoning, but that won’t happen in 2021.” headtopics.com

Gold futures rose 0.1%, steadying after their losses from Thursday, when they suffered their. The price of the precious metal tends to decline when investors anticipate rates rising and yield-bearing investments becoming more attractive.Overseas, the pan-continental Stoxx Europe 600 dropped 1.5%.

Major indexes in Asia closed on a mixed note. Hong Kong’s Hang Seng Index added almost 0.9% and South Korea’s Kospi Composite index ticked up 0.1%. Japan’s Nikkei 225 closed down 0.2% and China’s Shanghai Composite was relatively flat.Traders worked on the floor of the New York Stock Exchange on Thursday.

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