The stock market had its worst day of the year so far on Tuesday, with U.S. markets losing $720 billion in value.
The Dow Jones Industrial Average dropped nearly 700 points, or 2.06%, while the S&P 500 fell 2%, closing at 3,997.34.
With 2-year treasury yields nearing 5%, an indicator most sensitive to Fed policy changes, investors remain concerned that higher-than-expected inflation data will lead to further increases in interest rates, according to CNBC.
“I think it’s the equity markets that finally caught up to what the Treasury markets have been saying for a couple of weeks,” B. Riley Wealth’s chief market strategist Art Hogan told CNBC.
“Now, I think the equity market is catching up to the fact that the Fed speakers mean business, and this data may well mean higher-for-longer interest rates. … It’s just a catch-up that was overdue,” he continued.
On Wednesday, the Federal Reserve released its minutes report, recapping a meeting held on February 1. In the report, the Fed stated, “Inflation has eased somewhat but remains elevated.”
The Fed also noted that Russia’s war against Ukraine is creating “tremendous human and economic hardship and is contributing to elevated global uncertainty.”
The Fed Committee says it is highly cognizant of inflation risks and is “strongly committed to returning inflation to its 2 percent objective.”
“The realization is that the Fed is not kidding around about higher for longer, and in fact it might be a little bit higher for a little-to-a-lot bit longer,” said Carol Schleif, chief investment officer at BMO Family Office, according to Investing.com.
“The market keeps looking for a dovish pivot, and they are just not going to get it,” said Schleif.
Home Depot was one of the biggest market losers on Tuesday, dropping nearly 7%.
The Dow fell further on Wednesday, down 84.5 points at closing.