S&P 500 falls as rising yields spark recession fears

The S&P 500 fell on Thursday and bond yields jumped as Federal Reserve officials signaled their campaign to hike rates to curb inflation was far from over.

The Dow Jones Industrial Average was little changed, after falling 314 points during the session. The S&P 500 slid 0.41%, while the Nasdaq Composite fell 0.35%.

Stocks rebounded from lows hit earlier in the day as shares of Cisco Systems jumped more than 4%. The networking gear company beat expectations in its fiscal first quarter report and issued an upbeat forecast. Other tech stocks such as Apple and Intel also led gains.

Investors weighed comments from St. Louis Federal Reserve Chairman James Bullard, who said in a speech Thursday that “the key rate is not yet in an area that can be considered sufficiently restrictive”.

“The change in monetary policy stance appears to have had only limited effects on observed inflation, but market prices suggest disinflation is expected in 2023,” Bullard added.

The policy-sensitive 2-year Treasury yield jumped to 4.465% on Thursday, raising fears that higher rates could push the economy into a recession.

“I’m looking at a labor market that’s so tight, I don’t know how you keep bringing that level of inflation down without having a real slowdown, and maybe we even have a contraction in the economy to get there. “said Kansas City Fed President Esther George at the Wall Street Journal Wednesday.

Stocks vulnerable to a recession and higher rates drove losses in the S&P 500. Materials stocks fell, as did consumer discretionary names. Defensive stocks such as health outperformed.

“Additional monetary tightening and the cumulative impact of this year’s rate hikes suggest that recession risks remain elevated,” UBS Global Wealth Management chief investment officer Mark Haefele wrote in a note. “We continue to believe that the macroeconomic preconditions for a sustained recovery – that interest rate cuts and a trough in growth and corporate earnings are on the horizon – are not yet in place.”

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