Markets: News  

By Vivien Lou Chen and William Watts

U.S. stocks finished with back-to-back losses on Monday, handing Dow industrials an almost 1,193-point loss in the past two trading days, as investors continued reacting to remarks by Federal Reserve Chairman Jerome Powell, who underscored policy makers' resolve to squeeze out inflation even if it creates economic pain.

What happened

Stocks had recorded their worst day in months on Friday, when the Dow industrials tumbled 1,008.38 points, or 3%, to close at 32,283.40; that was the biggest percentage decline since May 18. The S&P 500 slid 3.4%, its biggest drop since June 13, and the Nasdaq Composite tumbled 3.9%, the largest drop since June 16.

What drove markets?

Markets remained rattled by Powell, who made blunt comments about the central bank's commitment to bringing down high inflation on Friday during a speech at the Kansas City Fed's annual symposium at Jackson Hole, Wyo. Nonetheless, there were some glimmers of hope among stock investors on Monday, when Dow Industrials and the S&P 500 briefly and periodically flashed green. Pockets of buying could also be seen in the S&P 500's energy, utilities, and consumer-staples sectors.While Friday was about the "shock" to markets that there isn't going to be a Fed pivot or shift to easier policy, Monday is about "the market saying, `Well, that's what Jay Powell says, but the facts may overwhelm that view over time,' " said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co. in West Conshohocken, Pa., which manages $20 billion. "Given how bad the news was on Friday, the fact we were briefly green shows some pretty good resilience," Conger said via phone. "It is going to be a volatile environment because we don't know if the economy is slowing down and we don't know if inflation is moderating. The range of potential outcomes is very wide, so the market -- for lack of direction -- is going to have to swing pretty widely depending on the data."See: Fed's Powell sparked a 1,000-point rout in the Dow. Here's what investors should do next

On Friday, Powell said the Fed would continue its inflation fight even if it means pain for American families and businesses. His comments seemed to dash investor notions of a coming "pivot" away from aggressive rate increases "Chair Powell told us on Friday that the Fed is willing to accept a recession, if that's the cost of bringing inflation under control," Bill Adams, chief economist at Dallas-based financial services company Comerica, said via phone. "The Fed is preparing private sector observers for 'some pain' to households and businesses, which I think is a polite way of saying 'recession.' "Because of delays between the time inflation would theoretically slow and economic data is released, "that means the Fed is going to wait longer into a cooling economy before its willing to take its foot off the brake," Adams said.

Powell also mentioned a resilient jobs market, suggesting that he is willing to allow unemployment to climb, according to Ipek Ozkardeskaya, senior analyst at Swissquote Bank. This means another strong print on the state of jobs growth in August could help strengthen the Fed's resolve."Due Friday, the NFP data is expected to print another month close to 300,000 new nonfarm job additions in the U.S. Over the past four months, the data clearly exceeded the market expectations, especially last month, the number printed was above half-a-million new job additions, versus around 250,000 expected by analysts," Ozkardeskaya said.

Even if the data were to come in short of economists' expectations, investors shouldn't expect to see any change in the Fed's outlook. Instead, "from now on, we expect to see a deeper downside correction in equities, and further retracement of the summer rally."

Read:Stocks headed for more pain as 3,900 becomes new line in the sand for the S&P 500, chart watchers say

Companies in focus

Other assets

Hear from Carl Icahn at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The legendary trader will reveal his view on this year's wild market ride.

-- Barbara Kollmeyer contributed to this article.

-Vivien Lou Chen

(END) Dow Jones Newswires

August 29, 2022 16:35 ET (20:35 GMT)

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