Nasdaq falls over 2% after Powell's speech sparks tech rout

© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 15, 2022. REUTERS/Brendan McDermid/File Photo

By Bansari Mayur Kamdar and Devik Jain

(Reuters) - The Nasdaq led Wall Street sharply lower on Friday after Federal Reserve Chief Jerome Powell signaled the central bank would keep raising interest rates to tame inflation, sparking a selloff in growth and technology stocks.

The U.S. economy will need tight monetary policy "for some time" before inflation is under control, Powell said in a speech to the Jackson Hole central banking conference in Wyoming.

That means slower growth, a weaker job market and "some pain" for households and businesses, he added.

"His comments were hawkish, he's keeping the pedal to the metal here when it comes to policy to fight inflation," said Lindsey Bell, chief money and markets strategist at Ally.

All the 11 major S&P 500 sectors were lower in mid-day trading, with information technology, communication services and consumer discretionary stocks down between 2.5% and 3.1%.

Weighing on megacap growth and technology stocks, the U.S. two-year Treasury yields briefly popped to their highest levels since October 2007 before stabilizing near two-month highs. [US/]

High-growth and technology stocks such as Nvidia (NASDAQ:NVDA) Corp and Amazon.com Inc (NASDAQ:AMZN) declined 6.0% and 3.2%, respectively, after posting sharp gains in the previous session.

Economy-sensitive banks fell 1.9%.

"The market is reacting pretty negatively because if you look at expectations for where fed funds rate go this year and next year, the market was anticipating that the Fed backs off in the next year and nothing that Powell said suggests that would be the case," said Bell.

U.S. stock indexes have retreated since the turn of the year as investors priced in the expectation of aggressive interest rate hikes and a slowing economy.

But they have recovered strongly since June, with the S&P 500 recouping nearly half its losses for the year on stronger-than-expected quarterly earnings and hopes inflation has peaked.

Traders were still divided between a 75-basis-point and a 50-basis-point hike by the Fed, while economists see the central bank lifting rates by 50 basis points at its meeting next month.

At 11:45 a.m. ET, the Dow Jones Industrial Average was down 568.91 points, or 1.71%, at 32,722.87, the S&P 500 was down 86.30 points, or 2.06%, at 4,112.82, and the Nasdaq Composite was down 330.25 points, or 2.61%, at 12,309.02.

Data earlier showed consumer spending barely rose in July, but inflation eased considerably, which could give the Fed room to scale back its aggressive interest rate increases.

Dell Technologies (NYSE:DELL) Inc fell 11.9% as it joined rivals in predicting a slowdown as runaway inflation and the darkening economic outlook prompt consumers and businesses to tighten their purse strings.

Affirm Holdings Inc tumbled 20.7% after the buy-now-pay-later lender forecast full-year revenue below Wall Street estimates, underscoring the broader downturn in the fortunes of the once high-flying fintech sector.

Declining issues outnumbered advancers for a 5.65-to-1 ratio on the NYSE and a 4.74-to-1 ratio on the Nasdaq.

The S&P index recorded three new 52-week highs and 32 new lows, while the Nasdaq recorded 24 new highs and 92 new lows.