Market Snapshot: Dow sinks 1,300 points, Nasdaq tumbles 5.9% as stocks flirt with worst day in two years

What’s driving markets

Stocks hit reverse on a relief rally sparked a day earlier when Fed Chairman Jerome said the central bank wasn’t likely to hike its benchmark interest rate by 75 basis points at its next meeting, a comment that immediately sent stocks higher and the dollar
DXY,
+1.16%
and Treasury yields
TMUBMUSD10Y,
3.100%
lower.

But Powell was hardly dovish, all but promising consecutive 50 basis rate hikes, and saying it would take a cooling of red-hot inflation or a deteriorating jobs market for the Fed to slow down the pace of rate increases, and even then only by 25 basis point increments.

“There was perhaps of bit of an overextrapolation of what Powell said in terms of not actively considering 75-basis-point hikes. When in reality, the Fed is going to do what it has to do to get inflation down,” said Michael Reynolds, vice president of investment strategy at Glenmede, by phone.

The central bank’s plan to shrink its near $9 trillion balance sheet, starting in June, also “isn’t something to be ignored,” Reynolds said, particularly if the economy, as he suspects, is entering the late-stage of an expansion.

“These big days always surprise,” he said. “But in the grand scheme of things, the volatility we are seeing today isn’t, when you think about where we are in the economic cycle.”

U.S. Treasury yields were sharply higher Thursday, with the rate on the 10-year note
TMUBMUSD10Y,
3.100%
jumping above 3.06% to its highest since 2018. Rising yields are a negative for technology and other growth stocks in particular, cutting the present value of the future earnings and cash flow their valuations are based upon.

“With the Fed now acting as well as talking hawkish, the U.S. is heading for a downturn with interest rate sensitive sectors like housing and autos already showing weakness,” said Christopher Wood, global head of equity strategy at Jefferies, in a note.

Meanwhile, data showed first-time U.S. jobless claims rose 19,000 last week to 200,000. U.S. productivity fell at a 7.5% annual rate in the first quarter, the biggest drop since 1947. Unit-labor costs jumped at an 11.6% annual pace in the first quarter.

Companies in focus

Twitter Inc.
TWTR,
+3.24%
shares rose 3.4%, after Saudi Arabian investor Prince Alwaleed bin Talal indicated plans to keep his 35 million-share stake in the company, according to a new Securities and Exchange Commission filing from Musk. Musk also detailed $7.2 billion in equity commitment letters, including $1 billion from Larry Ellison, the co-founder of Oracle, as well as the crypto exchange Binance and Qatar’s sovereign-wealth fund.

Tesla Inc.
TSLA,
-7.51%
shares fell 7.3% after CNBC reported that Musk intends to temporarily serve as chief executive at Twitter once the deal closes.

Shopify Inc.
SHOP,
-12.57%
shares fell 13% after the company reported a loss in the first quarter and announced the acquisition of Deliver Inc. in a deal valued at $2.1 billion.

Shares of Kellog Co.
K,
+4.16%
rose 4.1% after the food company reported first-quarter earnings that beat expectations and raised its guidance.

How are other assets performing?

The ICE U.S. Dollar Index,
DXY,
+1.16%
a measure of the currency against a basket of six major rivals, surged 1.1%.

Gold futures
GC00,
+0.41%
were higher, with gold for June delivery
GCM22,
+0.41%
up 0.4% to $1,876 an ounce, after topping $2,000 an ounce.

Bitcoin
BTCUSD,
-7.24%
tumbled 7.6% to around $37,000.

In European equities, the Stoxx Europe 600
SXXP,
-0.70%
 fell 0.7%, while London’s FTSE 100
UKX,
+0.13%
rose 0.1%.

In Asia, the Hang Seng Index
HSI,
-0.36%
fell 0.4%, the Shanghai Composite Index
SHCOMP,
+0.68%
closed up 0.7%, while the Nikkei 225 Index was closed for a holiday.

—Steve Goldstein contributed reporting to this article.