Wall Street Opens Sharply Lower on Inflation Fears Ahead of Powell Testimony

(C) Reuters.

By Geoffrey Smith

Investing.com — U.S. stock markets opened sharply lower, led again by losses in technology stocks, as fear of a potential end to the Federal Reserve’s policy of easy money prompted profit-taking in some of the country’s most expensively-valued stocks.

By 9:40 AM ET (1440 GMT), the Nasdaq Composite, which more than doubled from its post-pandemic low before the recent sell-off started, was down 395 points, or 2.9%, adding to losses of some 2.5% on Monday. The S&P 500 was down 1.1%, while the Dow Jones Industrial Average, home to a greater concentration of mature ‘value’ stocks that command less demanding valuations, was down only 0.5%, or 154 points, at 31,368 points.

The moves came as Federal Reserve Chairman Jerome Powell prepared to start two days of testimony in Congress about the state of the economy. Fears that the combination of loose fiscal and loose monetary policy could stoke inflation have driven up 10- and 30-year bond yields to their highest in over a year ahead of the testimony, ensuring that Powell’s every word will be scrutinized even more closely than usual.

The most dramatic moves were in the car sector, with Tesla (NASDAQ:TSLA) stock – whose valuation has long been at levels hard to justify on traditional metrics – falling 11%. The sell-off had twin catalysts: for one, the price of Bitcoin has slumped some 20% since the weekend. While that’s unlikely to have any material impact on its finances, CEO Elon Musk has tied his company’s valuation somewhat to the cryptocurrency by converting $1.5 billion of its available cash into Bitcoin.

The second catalyst for the profit-taking was the formal announcement overnight that Lucid Motors will merge with the Churchill Capital IV Corp (NYSE:CCIV) SPAC set up by former Citigroup (NYSE:C) investment banking head Michael Klein. The terms of the merger also exposed the degree to which speculation there had gotten ahead of itself. Churchill stock fell 40%. Once the merger is complete, Lucid – founded by Tesla’s former chief engineer Peter Rawlinson – will have a direct, U.S.-based competitor against which its valuation can be benchmarked.

Similar concerns also weighed on the ADRs of Chinese EV maker Nio (NYSE:NIO), which fell over 10% in early trading.

Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) all saw selling, losing 3.4%, 2.0% and 1.7%, respectively, while Shopify stock (NYSE:SHOP) fell by 7.8% after announcing the placement of 1.18 million new shares.

Home Depot (NYSE:HD) stock fell 5.9% and TheRealReal (NASDAQ:REAL) stock fell over 10%, both after disappointing earnings updates. Home Depot said it couldn’t be sure that the home improvement boom witnessed during the pandemic could continue through 2021.