The S&P 500 fell 0.7%, while the Dow Jones Industrial Average lost 180 points, or roughly 0.6%. The tech-heavy Nasdaq Composite once again led losses, falling another 1%.
Meanwhile in the bond market, the benchmark 10-year Treasury note held above 3.1% and the 2-year Treasury yield topped 3.4%, hitting its highest level since 2007 earlier during the trading day.
The moves come after Powell reiterated Friday in Wyoming that the Fed will continue to intervene aggressively to fight inflation, even at the expense of economic growth. The Nasdaq fell 3.9 percent after the remarks and the S&P 500 fell 3.3 percent, with both indexes posting their biggest one-day declines since June 13 after Powell’s speech. The Dow erased 1,000 points during the session, or roughly 3%.
“Chairman Powell’s speech was a good reminder that the 2-year Treasury yield is more important to equity markets than whether the FOMC moves 50 or 75 basis points at the upcoming meetings,” DataTrek’s Nicholas Collas said in note on Monday, indicating that US large-cap stocks are sensitive to the 2-year benchmark.
The jump in 2-year yields from 2.28% to 3.45% in mid-June was what hammered stock valuations, with the S&P hitting its lowest since June 16 after yields peaked on June 14 at 3. 45%, Collas said. And after 2-year yields settled near 3%, the S&P 500 rose 17% through August 16.
The most significant risk to stocks is earnings weakness, according to Morgan Stanley’s Mike Wilson, who pointed out that while the first half of the year was driven by Federal Reserve policy and tighter financial conditions, the second half will be driven by expectations for profits for the next year.
“As a result, equity investors should focus on this risk rather than the Fed, especially as we enter the seasonally weakest period of the year for earnings revisions and inflation further eats away at margins and demand,” Wilson said.
Wells Fargo’s head of global asset allocation strategy, Tracy McMillian, echoed a similar sentiment in an interview with Yahoo Finance Live on Friday.
“What we heard today is that growth is too strong,” McMillian said. “What this means for earnings is that we will probably have to see some cuts to Q3 and Q4 earnings expectations.”
Earnings season is coming to an end, but the results of several headliners remain active for investors this week, including Best Buy (BBY), HP (HPQ), large lots (BIG), Chewing (CHWY), Lululemon Athletica (LULU) and Broadcom (AGO).
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc