As of mid-week, the stock market was cruising along, with the S&P 500 poised to top its September 20th all-time high of 2930.
Then along came bonds—and Federal Reserve chairman Jerome “Jay” Powell.
At the Atlantic Forum, Powell told interviewer Judy Woodruff of the PBS News Hour, “The really extraordinarily accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore…We need interest rates to be gradually, very gradually moving back towards normal.”
This was really nothing new—Powell and his predecessor Janet Yellen had said the same thing many times. But immediately, bond traders went into a selling frenzy, and the yield on the ten-year Treasury note, which had hovered above the magic 3% threshold, soared: As of Friday, the ten year yielded near 3.25%, its highest since June 2011. (Yields move in the opposite direction of bond prices.)
The Dow Jones Industrial Average plummeted 200 points Thursday and closed down another 180 points Friday. The S&P was off by almost 50 points, and the Nasdaq Composite index had plunged over 250 points in the week’s trading.
Is this a real danger for stocks?