Stocks fell on Wednesday for a myriad of reasons, but mostly because the bond market signaled that the Federal Reserve may be lagging behind in its fight against inflation as the central bank decided to keep interest rates unchanged.
The Dow Jones Industrial Average closed 1,153 points lower, or 2.2%, its worst decline since April 2025. The S&P 500 fell 1.5%. The Nasdaq Composite fell 1.7%.
The Fed stayed on the sidelines in its latest interest rate decision, and the bond market responded with the 10-year Treasury yield jumping 7 basis points to above 4.67%. The yield on 30-year government bonds rose 10 basis points to above 5.2%, hitting its highest level since 2007.
While the three officials wanted a hike, the Fed still held its stance on interest rates. And the sharp speech of the president of the FED, Kevin Warsh, failed to convince the bond market, reports SEEbiz.
“I want to emphasize, of course, that the decisions of this board are of great importance and where necessary and appropriate, we will not hesitate to act,” Warsh said during his press conference.
“If you really want to get to 2%, I think you have to raise interest rates,” DoubleLine’s Jeffrey Gundlach said on CNBC’s “Closing Bell,” noting that the jump in yields after the Fed’s decision sends a message to Warsh.
“Long bond yields rose significantly after the press conference because the bond market authorities are saying, ‘If you really want us to believe your rhetoric, you need to start acting,’” Gundlach said.
Inflation worries were fueled by a surge in oil prices after President Donald Trump told a Fox News reporter that the US would hit Iran “strongly” in response to surprise attacks on troops in the Middle East. West Texas Intermediate crude futures rose more than 6% to settle at $84.46 a barrel.
Semiconductors extended their losing streak with the iShares Semiconductor ETF ( SOXX ) falling 5.5% for the fifth straight time. Chip stocks have come under pressure this month amid growing anxiety over the return of huge spending on artificial intelligence, as well as fears of more competition from China.
Micron Technology and KLA fell by about 10%. AMD lost 5.5%.
