US Stock Market: Dow tumbles over 500 points, Nasdaq ends 145 points lower after Powell's rate hike remark

U.S. stocks plummeted, the greenback jumped and the Treasury yield inversion hit its steepest mark in more than four decades on Tuesday as Federal Reserve Chairman Jerome Powell concluded the first day of his semi-annual, two-day monetary policy testimony before Congress.

All three major U.S. stock indexes lost more than 1 per cent at the close of a broad risk-off session as investors digested Powell's prepared remarks, and his responses to questions from the Senate Banking Committee.

The dollar jumped, and the inversion between short- and long-dated Treasury yields eased and crude prices tanked as the testimony from the U.S. central bank chief reaffirmed the Fed's determination to bring inflation down to its 2 per cent target rate.

"It's a pretty classic risk-off day," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. "The combination of (Powell) saying that the pace of rate hikes could accelerate and that the terminal rate would probably have to be adjusted upward was enough to send risk assets tumbling."

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In his testimony, Powell confirmed that a recent spate of generally robust economic data, particularly in the labor market, along with stubbornly slow inflationary cool-down, increases the likelihood that the Fed will raise its policy rate more aggressively.

At last glance, financial markets have priced in a 70.5 per cent chance of a 50 basis point increase to the federal funds target rate at the conclusion of the central bank's March meeting, according to CME's FedWatch tool.

The Dow Jones Industrial Average (.DJI) fell 574.98 points, or 1.72 per cent, to 32,856.46, the S&P 500 (.SPX) lost 62.05 points, or 1.53 per cent, to 3,986.37 and the Nasdaq Composite (.IXIC) dropped 145.40 points, or 1.25 per cent, to 11,530.33.

European shares extended their losses after Powell's prepared remarks fueled rate hike worries.

"The world is concerned that the Fed hikes rates so much and so long that the U.S. could head into recession," said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York.

The pan-European STOXX 600 index (.STOXX) lost 0.77 per cent and MSCI's gauge of stocks across the globe (.MIWD00000PUS) shed 1.46 per cent.

Emerging market stocks lost 0.87 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 0.81 per cent lower, while Japan's Nikkei (.N225) rose 0.25 per cent.

Benchmark Treasury yields dipped after Powell's remarks, and the inversion between 2-year and 10-year Treasury yields, a harbinger of potential recession, steepened. It was last wider in 1981.

Benchmark 10-year notes last rose 4/32 in price to yield 3.9696 per cent, from 3.983 per cent late on Monday.

The 30-year bond last rose 18/32 in price to yield 3.8794 per cent, from 3.912 per cent late on Monday.

The greenback surged, hitting its highest level since early January against a basket of world currencies as Powell indicated the Fed could ramp up its efforts to rein in inflation.

The dollar index rose 1.21 per cent, with the euro down 1.22 per cent to $1.0548.

The Japanese yen weakened 0.88 per cent versus the greenback at 137.16 per dollar, while sterling was last trading at $1.1825, down 1.63 per cent on the day.

Oil prices extended their losses, falling more than 3 per cent on the strengthening dollar and worries over dampening demand.

U.S. crude fell 3.58 per cent to settle at $77.58 per barrel and Brent settled at $83.29, down 3.35 per cent on the day.

Gold plunged in opposition to the rising dollar. Spot gold dropped 1.8 per cent to $1,814.48 an ounce