U.S. Stocks Come Under Pressure Amid Worries About Monetary Policy

Stocks fluctuated early in the trading session on Tuesday but have come under pressure over the course of the morning. The major averages have all moved to the downside, with the tech-heavy Nasdaq leading the way lower.

After outperforming its counterparts in the previous session, the Nasdaq is down 229.83 points or 1.6 percent at 14,302.73. The S&P 500 is also down 26.03 points or 0.6 percent at 4,556.61, while the Dow is posting a more modest loss, down 33.08 points or 0.1 percent at 34,888.80.

The weakness that emerged on Wall Street reflected renewed concerns about the outlook for monetary policy following comments from Federal Reserve Governor Lael Brainard.

Brainard described inflation as much too high during remarks at a Minneapolis Fed conference and predicted the Fed would start reducing its balance sheet at a “rapid pace” as soon as the May meeting.

“Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery,” Brainard said in prepared remarks.

She added, “The reduction in the balance sheet will contribute to monetary policy tightening over and above the expected increases in the policy rate reflected in market pricing and the Committee’s Summary of Economic Projections.”

The Fed may provide additional clues about the outlook for monetary policy with the release of the minutes of its March meeting on Wednesday.

CME Group’s FedWatch tool is currently indicating a 76.6 percent chance the Fed will raise rates by 50 basis points next month.

In U.S. economic news, the Institute for Supply Management released a report showing U.S. service sector growth reaccelerated in the month of March.

The ISM said its services PMI rose to 58.3 in March from 56.5 in February, with a reading above 50 indicating growth in the sector. Economists had expected the index to rebound to 58.0.

The slightly bigger than expected increase by the services PMI follows three consecutive monthly decreases after the index reached a record high in November.

A separate report released by the Commerce Department showed the U.S. trade deficit was nearly unchanged in February, as imports and exports both increased.

Semiconductor stocks are pulling back sharply after turning in a strong performance in the previous session, resulting in a 4 percent nosedive by the Philadelphia Semiconductor Index.

Considerable weakness has also emerged among airline stocks, as reflected by the 2.2 percent slump by the NYSE Arca Airline Index.

Housing stocks have also come under pressure amid concerns about higher interest rates, with the Philadelphia Housing Sector Index falling by 1.9 percent.

Networking, computer hardware and brokerage stocks have also moved to the downside, while notable strength is visible among pharmaceutical and utilities stocks.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Tuesday, with several markets closed for holidays. Japan’s Nikkei 225 Index edged up by 0.2 percent, while South Korea’s Kospi inched up by 0.1 percent.

Meanwhile, European stocks have moved mostly lower on the day. While the U.K.’s FTSE 100 Index has bucked the downtrend and crept up by 0.2 percent, the German DAX Index is down by 1.1 percent and the French CAC 40 Index is down by 1.7 percent.

In the bond market, treasuries have moved sharply lower over the course of the morning. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 12.4 basis points at 2.536 percent.