Indexes Weaken as Powell Returns, Said WSJ Print Subscription

Stocks fell Tuesday when Mr. Powell said to WSJ Print Subscription, the Fed is prepared to speed up the pace of interest-rate increases if inflation and the labor market don’t cool down. The S&P 500 lost 1.5% and markets moved to price amid a higher probability of a bigger rise in rates at the central bank’s next meeting.

“There’s this growing concern about a ‘no landing’ scenario, effectively where it turns out that the Fed and other central banks have just not done anywhere near enough” to temper economic growth and curb inflation, said John Roe, head of multiasset funds at Legal & General Investment Management.

In his second session of testimony to Congress, Mr. Powell said Wednesday the central bank was keeping its options open about future rate increases and that coming economic data would strongly influence the rate decision at the Fed’s March 21-22 meeting.

The global economy has shown signs of resilience in recent weeks.

The U.S. private sector added 242,000 jobs in February, according to the ADP employment report. That came in above economists’ forecasts, another sign of an unexpectedly strong labor market. A second readout, the JOLTS report on job openings, also came in higher than expected despite elevated layoffs in the technology sector.

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The most important near-term indicator for gauging the health of the jobs market will be Friday’s nonfarm payrolls report.

“We’re in an environment where every data point can cause volatility,” said Karim Chedid, an investment strategist at BlackRock to WSJ Print Subscription.

In bond markets, yields on shorter-dated Treasurys were poised to set new multiyear highs, as investors braced for higher Fed rates. The two-year yield edged higher to 5.057% after settling Tuesday at 5.011%, its highest closing level since June 2007. Bond yields rise as prices fall.

The yield on the benchmark 10-year Treasury note reversed earlier declines and recently stood at 3.979%, up from 3.974% Tuesday.

Bond-market moves in recent weeks have meant that the inversion of the yield curve—in which shorter-dated bonds yield more than longer-dated ones—deepened. Such inversions are often viewed as an indicator of a possible recession.

On Tuesday, two-year yields exceeded 10-year yields by more than a percentage point for the first time since 1981. The move also indicated that investors believe that interest rates will rise higher than previously expected over the coming months.

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“I think we will probably see half-point rate hikes and the market is already prepared for that,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management, which manages $42 billion in client assets.

Some investors are turning to cash and short-term Treasurys to search for income. Brian Vendig, president of MJP Wealth Advisors, which manages about $1 billion in assets, said he has been adding to prime money-market funds, short-term Treasurys and certificates of deposit for clients.

“If you can hide in cash and get competitive yields because you are looking for principal protection or you know of an expenditure that’s coming over the next 12 months, it makes sense to do that in this environment,” said Mr. Vendig to WSJ Print Subscription.

Among individual stocks, CrowdStrike rose 3.2% after the cybersecurity company gave a revenue outlook that came well above analysts’ forecasts. Online clothing and styling company Stitch Fix dropped 0.4% after it said losses more than doubled last quarter. Campbell Soup gained 1.9% after the soup and snack maker reported a 12% rise in sales.

Overseas, the Stoxx Europe 600 edged up less than 0.1%. Adidas rose 2.1% after the sportswear company cut its dividend as it contends with lower sales in China and a $6 billion mountain of unsold products. Shares in Continental, the German auto-parts supplier, rose 7.6% after it said it expects higher sales and earnings this year.

In Asia, the Shanghai Composite Index finished the day little changed, and Hong Kong’s Hang Seng Index fell 2.4%. Japan’s Nikkei 225 rose 0.5%.