Nasdaq Slumps Amid Fed Warnings On Inflation

Wall Street's major indexes closed lower on Thursday with Nasdaq's 2.5 percent drop leading the losses as investors took profits, particularly in technology stocks after a three-day rally, while multiple Federal Reserve officials were out talking about inflation and interest rate hikes.

Interest-rate sensitive growth stocks such as technology lagged the broader market in the last session before the fourth-quarter earnings season starts in earnest.

Several Fed officials spoke publicly about battling high inflation with Lael Brainard the latest, and most senior, US central banker signaling that the Fed was getting ready to start raising rates in March.

Other officials, including Chicago Fed President Charles Evans, talked about the need for tighter policy while Philadelphia Fed President Patrick Harker also discussed a March rate hike after San Francisco Fed President Mary Daly had mentioned a March lift-off late on Wednesday.

"When Brainard says we've got to do something, they're going do something," said Brad McMillan, chief investment officer for Commonwealth Financial Network, an independent broker-dealer in Waltham, Massachusetts. He said Brainard's comments were particularly striking coming from one of the Fed's most dovish officials.

"There doesn’t seem to be much debate left within the Fed about what direction they’re going, and not even much about how fast they should get there," he added.

The Dow Jones Industrial Average fell 0.49 percent, to 36,114, the S&P 500 lost 1.42 percent, to 4,659 and the Nasdaq Composite closed at 14,807.

Nasdaq's decline its biggest one-day percentage loss since January 5 when it fell 3.4 percent in a single session after hawkish Fed minutes were released for the December meeting. It did not help that Thursday's rate hike talk had followed the technology-laden Nasdaq's 1.7 percent advance in this week's first three sessions.

Even though US Treasury 10-year yields fell on Thursday, investors focused on profit taking, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in St. Louis.

"We had a pretty nice rebound in the Nasdaq the last few days, so there might just be some lingering nervousness around rates the Fed and some profit taking, especially ahead of earnings," said the strategist.

Samana described Brainard's comments as "a psychological hit to those hoping that there was some dissent to starting rate hikes sooner rather than later."

Wells Fargo followed Goldman Sachs, JPMorgan and Deutsche Bank in forecasting that the Fed might raise interest rates four times this year. (Reuters)