Wall St closes down, Fed speakers put rate hikes in focus

© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 12, 2022. REUTERS/Brendan McDermid

By Sinéad Carew

(Reuters) - Wall Street's major indexes closed lower on Thursday 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 on the last session before the fourth-quarter earnings season starts in earnest.

Several Fed officials spoke publicly about battling high inflation. Lael Brainard was the latest, and most senior, U.S. central banker to signal 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, Mass. He pointed to Brainard as 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.

According to preliminary data, the S&P 500 lost 66.92 points, or 1.42%, to end at 4,659.43 points, while the Nasdaq Composite lost 377.31 points, or 2.48%, to 14,807.29. The Dow Jones Industrial Average fell 161.44 points, or 0.44%, to 36,128.88.

It did not help that all the rate hike talk followed the technology-laden Nasdaq's 1.7% advance in this week's first three sessions.

Even though U.S. Treasury 10-year yields were falling on Thursday, investors went ahead and took their profits in Nasdaq stocks, according to Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) 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.

Adding some anxiety for investors, U.S. companies are due to report results on the final quarter of 2021 in the coming weeks with banks JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo set to start the ball rolling on Friday, while big technology companies report next week.

Year-over-year earnings growth from S&P 500 companies were expected to be lower in the fourth quarter compared with the first three quarters but still strong at 22.4%, according to IBES data from Refinitiv.

Retail investors have also raised their exposure to bank stocks ahead of the earnings announcements, according to Vanda (NASDAQ:VNDA) Research's weekly report on retail flows.

Delta Air Lines (NYSE:DAL) has gained ground after beating estimates for fourth-quarter earnings. Its chief executive also predicted a swift recovery from turbulence caused by the Omicron coronavirus variant, also helping to lift the S&P 1500 Airlines index during the session.

Data showed the producer price index (PPI) rose 0.2% last month after advancing 0.8% in November while in the 12 months through December, the PPI rose 9.7% versus the 9.8% forecast of economists polled by Reuters.

The PPI figures come a day after Wall Street indexes cheered consumer inflation numbers that hit a 40-year high but largely met market expectations.

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