S&P 500 drops back to 4,400 as markets digest hawkish Fed commentary

• Major US equity indices reversed early gains on Thursday amid hawkish comments from Fed Chair Powell.
• The S&P 500 dipped back to 4,400, having earlier rallied above 4,500 on initial strength related to strong Tesla earnings.

Major US equity indices reversed early gains on Thursday as US yields rallied following hawkish comments from Fed Chair Jerome Powell, who endorsed the possibility multiple 50 bps rate hikes at upcoming Fed meetings. Strong earnings from Tesla (+2.8%) following Wednesday’s close helped the S&P 500 open Thursday trade roughly 0.75% higher and at one point surpass the 4,500 mark, but Powell’s comments that 50 bps rate hikes were “on the table” at upcoming meetings, which compounded an earlier hint from Fed’s Mary Daly that the Fed would even consider a 75 bps move, saw the index drop under 4,400.

At current levels in the 4,390s, the S&P 500 is trading with on the day losses of nearly 1.5%, with the bears eyeing a test of monthly lows near 4,370. The Nasdaq 100, unsurprisingly, was the underperformer of the major US indices, dropping closer to 2.0% and under 13,750 for the first time this month. The Nasdaq 100 is more heavily weighted to high price-to-earnings ratio tech and so-called growth stocks, which tend to suffer in an environment of rising interest rates.

The Dow, which is weighted a little more towards value/cyclical stocks which tend to hold up better when interest rates rise, dropped a little less than 1.0% to give up 35,000 status. A weaker than expected US Philadelphia Fed Manufacturing survey for April and robust weekly jobless claims numbers didn’t have an impact on market sentiment, with central bank speak taking the limelight.

Looking ahead, earnings remain in focus and could potentially offer the market a bit of a lift. For the most part, it's been a decent earnings season thus far, with the notable exception of the Netflix debacle earlier in the week. Most recently, United Airlines Holdings and American Airlines Group posted strong results and saw strong gains on Thursday after predicting a return to profit this quarter amid a rapid recovery in travel demand.