Treasury yields surged, while stocks finished lower as Jerome Powell threw cold water on Wall Street’s dovish wagers.

Just eight days after his speech had fueled bets the U.S. Federal Reserve was done with hikes, Powell said officials won’t hesitate to tighten if needed. While that’s essentially what several Fed speakers have been signaling, it’s the part that drew investors’ attention, especially after a rally in equities and bonds. 

The S&P 500 halted what would have been its longest advance since 2004, while two-year rates topped five per cent. A weak sale of 30-year notes also weighed on sentiment, raising concern about the market’s ability to absorb new debt. Powell’s comments also made traders price in slightly higher odds of an additional Fed hike, while paring bets on a rate cut happening before July.

“Powell’s comments coupled with a disappointing auction is a logical excuse for the market to begin consolidating gains,” said Quincy Krosby, chief global strategist at LPL Financial. “Markets have had a strong move, but have edged closer to overbought levels.”

The substance of Powell’s remarks was not materially different from what he said last week — “though it reads hawkish compared to market expectations, which have become quite confident that the Fed is done,” according to Michael Feroli at JPMorgan Chase & Co. 

To Krishna Guha at Evercore ISI, Powell’s “sterner tone” might reasonably be read as an effort to lean against further easing of financial conditions, hold rate cut expectations at bay and keep the option of hiking further, if needed, open. 

While this ought to be risk-off at the margin, “we do not interpret this as representing a substantive shift in policy signaling as opposed to a tone-correction — and do not for instance see any serious effort to put a December hike back in play,” Guha noted.

Markets were jittery as Powell warned investors not to be misled by the “head fakes” of a few good months of data, said Jeffrey Roach at LPL Financial. Still, Roach expects yields to come down ahead of next week’s inflation data — which should provide some “salve” for the markets as the headline number will likely be soft.

Elsewhere, Bitcoin topped US$36,000, climbing past Terra crash level, in a win for bruised bulls. West Texas Intermediate oil rose and settled just below $76 a barrel after a $5 slump in the last two sessions pushed futures into oversold territory on their relative strength index.

Corporate Highlights:

• Apple Inc. risks having to pay a €13 billion (US$14 billion) tax bill to Ireland after an adviser to the European Union’s top court said the iPhone maker’s victory in an earlier challenge should be thrown out.
• Walt Disney Co. reported better-than-expected profits and vowed to cut $2 billion in expenses as it faces pressure from activist investor Nelson Peltz.
• AMC Entertainment Holdings Inc. plans to sell as much as $350 million of shares.
• Arm Holdings Plc gave a disappointing sales forecast amid a slump in smartphone sales and uncertain timing for new licensing deals.
• Lyft Inc. reported revenue and profit that beat analysts’ estimates in the third quarter, but introduced a new performance metric that compared it unfavorably to larger rival Uber Technologies Inc.
• Rogers Communications Inc. beat estimates after posting strong wireless sales during the back-to-school period and a revenue increase in its media and cable businesses.
• Manulife Financial Corp.’s earnings got a lift from its business in Asia, where insurance sales in Hong Kong to mainland Chinese visitors continue to improve after the loosening of pandemic travel restrictions.

Key events this week:

• ECB President Christine Lagarde participates in fireside chat, Friday
• U.S. University of Michigan consumer sentiment, Friday
• Dallas Fed President Lorie Logan and her Atlanta counterpart Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.8 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 0.8 per cent
• The Dow Jones Industrial Average fell 0.6 per cent
• The MSCI World index fell 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.5 per cent
• The euro fell 0.4 per cent to $1.0664
• The British pound fell 0.5 per cent to $1.2218
• The Japanese yen fell 0.3 per cent to 151.37 per dollar

Cryptocurrencies

• Bitcoin rose 2.7 per cent to $36,560
• Ether rose 7.9 per cent to $2,036.35

Bonds

• The yield on 10-year Treasuries advanced 14 basis points to 4.63 per cent
• Germany’s 10-year yield advanced three basis points to 2.65 per cent
• Britain’s 10-year yield advanced three basis points to 4.27 per cent

Commodities

• West Texas Intermediate crude rose 0.3 per cent to $75.55 a barrel
• Spot gold rose 0.4 per cent to $1,957.49 an ounce

This story was produced with the assistance of Bloomberg Automation.