A selloff in tech stocks weighed heavily on trading Wednesday, with the most-recent string of Federal Reserve speakers reinforcing the idea that interest rates will need to keep climbing to quash inflation.

Their tone was clearly intended to catch the market’s attention in what looked like a concerted effort to push back against the dovish read of Jerome Powell’s interview Tuesday, noted Krishna Guha at Evercore ISI. From Fed Bank of New York President John Williams to his Minneapolis counterpart Neel Kashkari and Governor Christopher Waller, the message was clear: policy may need to be tight for a while.

Those remarks just gave credence to the recent hot trade in the rate-options market — where several big wagers on the Fed’s benchmark reaching 6 per cent  have popped up. That’s nearly a percentage point higher than consensus. For several market observers, such hawkish positioning makes it tough for equities to keep grinding higher — especially after the rally that brought the S&P 500 to overbought territory.

Another aspect is that while Powell has refrained from pushing back on the stock surge that has contributed to a recent easing in financial conditions, other policymakers may indeed embrace tougher talk to put a lid on gains. That’s the perception of Lisa Shalett at Morgan Stanley Wealth Management, who says the recent rally in the face of worsening earnings and economic expectations has produced “massive disconnects” that threaten market stability.

“Even though we shifted early this year from ‘cautious’ to ‘cautiously constructive,’ adding back to stocks for the first time in 18 months, we continue to expect market volatility ahead as news flow on earnings, inflation, the economy, and Fed bounces from bullish to bearish and back again,” wrote Stephen Auth, chief investment officer of equities at Federated Hermes.

The S&P 500 fell over 1 per cent , almost wiping out its Tuesday’s rally. The Nasdaq 100 underperformed, with Google’s parent Alphabet Inc. down more than 7 per cent  on concern that its new artificial intelligence chatbot Bard may yield inaccurate responses. Some other megacaps like Apple Inc. and Amazon.com Inc. also slumped, while Microsoft Corp.’s erased gains that briefly put the software giant’s market value above US$2 trillion.

To Troy Gayeski at FS Investments, it will be a challenging environment for equities and fixed income for quite some time.

“When you think of equity markets, we think it’s going to be a choppy, sloppy mess as far as the eye can see,” he said. “It’s been a buoyant start to the year. And when you actually scratch your head, what’s actually causing it? The thing to remember is the most powerful rallies are always in bear markets because people underinvest and you have short covering that starts, and you start to suck people in to new bullish narratives.”

Corporate Highlights:

• Chipotle Mexican Grill Inc.’s key measure of sales fell short of Wall Street’s expectations, showing that stubbornly high inflation is having an impact on the burrito chain’s operations.
• Yum! Brands Inc. reported profit that exceeded estimates as the company’s Taco Bell business pulled in consumers who may be trading down due to inflation.
• Uber Technologies Inc. reported revenue that beat estimates, suggesting rising inflation hasn’t kept consumers from ordering more takeout or hailing a ride.
• Under Armour Inc. raised its profit forecast after a strong holiday season and better-than-expected inventory management.

Elsewhere, Turkey’s stock exchange suspended trading for the first time in 24 years following a selloff that erased billions of dollars from the value of its main equities gauge in the wake of two devastating earthquakes. Trading in Turkish equities, futures and option contracts will resume on Feb. 15. 

Key events:

• U.S. initial jobless claims, Thursday
• ECB President Christine Lagarde participates in EU leaders summit, Thursday
• Bank of England Governor Andrew Bailey appears before Treasury Committee, Thursday
• U.S. University of Michigan consumer sentiment, Friday
• Fed’s Christopher Waller and Patrick Harker speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.1 per cent  as of 4 p.m. New York time
• The Nasdaq 100 fell 1.8 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 0.1 per cent
• The euro fell 0.1 per cent  to US$1.0714
• The British pound rose 0.1 per cent  to US$1.2066
• The Japanese yen fell 0.3 per cent  to 131.42 per dollar

Cryptocurrencies

• Bitcoin fell 1.6 per cent  to US$22,827.99
• Ether fell 1.6 per cent  to US$1,641.22

Bonds

• The yield on 10-year Treasuries declined five basis points to 3.62 per cent
• Germany’s 10-year yield advanced one basis point to 2.36 per cent
• Britain’s 10-year yield was little changed at 3.31 per cent

Commodities

• West Texas Intermediate crude rose 1.7 per cent  to US$78.43 a barrel
• Gold futures rose 0.2 per cent  to US$1,887.70 an ounce