Markets Sink on Hawkish Fed Minutes and Commentary…..

U.S. equities finished lower for a second-straight session, as the markets remained unnerved by the economic implications of a highly aggressive Fed and a potential policy mistake. The Fed released the minutes from its March monetary policy meeting, indicating that it looks to become more vigorous with its tightening campaign. The skittishness was exacerbated by recent Fedspeak, as yesterday’s commentary from Fed governor and vice chair nominee Lael Brainard, who suggested a rapid pace of balance sheet reduction as soon as the May meeting, was met with further hawkish remarks from Philadelphia Fed President Patrick Harker today. Treasuries were mixed with yields higher at the long-end, reversing a key yield curve inversion that has fostered recession worries. The U.S. dollar ticked higher, while crude oil prices were lower, and gold was little changed. M&A news dominated a light equity docket, with JetBlue Airways offering a $3.6 billion cash takeover offer for Spirit Airlines, countering Frontier Group Holdings’ $2.9 billion cash and stock agreement. In other economic news, mortgage applications fell for a fourth-straight week amid the recent spike in interest rates. Asia finished mostly lower on the hawkish Fed official’s commentary, which also weighed on European equities, along with the ongoing war in Ukraine as new sanctions on Russia were announced by the U.S. and proposed by the European Union.

The Dow Jones Industrial Average declined 145 points (0.4%) to 34,497, the S&P 500 Index lost 44 points (1.0%) to 4,481, and the Nasdaq Composite decreased 315 points (2.2%) to 13,889. In moderate volume, 4.9 billion shares of NYSE-listed stocks were traded, and 5.2 billion shares changed hands on the Nasdaq. WTI crude oil fell $5.73 to $99.23 per barrel. Elsewhere, the gold spot price traded $0.30 lower to $1,927.20 per ounce, and the Dollar Index was up 0.2% at 99.65.

The MBA Mortgage Application Index declined 6.3% last week, following the prior week’s decrease of 6.8%. The fourth-straight weekly downturn came as a 9.9% drop in the Refinance Index was met with a 3.4% fall for the Purchase Index. The average 30-year mortgage rate extended its climb, rising 10 bps to 4.90%, and is up 154 basis points (bps) versus a year ago.

In afternoon action, the Federal Reserve released the minutes from the Federal Open Market Committee’s (FOMC) March monetary policy meeting, at which the central bank initiated its rate hike campaign. The report showed that Members discussed and “generally agreed” to reduce the holdings on its balance sheet by a maximum of $95 billion—$60 billion in Treasuries and $35 billion in mortgage-backed securities—phased over three months, and likely starting in May. The move would double the rate of its last effort. In addition, the Committee discussed the pace at which future rate hikes should occur, with the minutes noting that, “Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated.” The report showed that the uncertainty surrounding the war in Ukraine deterred some from going with such a move in March. The report comes in the wake of some Fedspeak this week, where Fed governor and vice chair nominee Lael Brainard suggested yesterday a rapid pace of balance sheet reduction as soon as the May meeting, and further hawkish remarks from Philadelphia Fed President Patrick Harker today.

Treasuries finished mixed with yields sitting near three-year highs and the yield curve steepening after noticeably flattening. The yield curve spread has garnered heavy attention, with some portions of the curve inverting to foster talk of the potential for a recession on the horizon. The recent steepening of the curve brought a portion—the spread between 2-year and 10-year yields—out of inversion territory this week.

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