Dow drops 500 points after Fed officials spook investors with cloudy rate-cut outlook

The three major stock indexes fell more than 1% each and the S&P 500 had its biggest daily percentage drop since Feb. 13 on Thursday as Federal Reserve officials took a cautious approach in comments on the outlook for interest rate cuts, and investors braced for Friday’s monthly jobs report.

Investors also digested comments from President Biden, whocalled for an immediate ceasefirein a call with Israel Prime Minister Benjamin Netanyahu over the Gaza war. Oil prices climbed amid the geopolitical tensions.

The Dow Jones Industrial Average tumbled 530.16 points, or 1.4%, to 38,596.98, the S&P 500lost 1.2% and the Nasdaq dropped 1.4%.

All of the major S&P 500 sectors fell on the day, led by a 1.7% drop in technology, while defense-related shares like Lockheed Martingained.

Among the comments by Fed officials, Minneapolis Fed Bank President Neel Kashkari said that at the central bank’s meeting last month he penciled in two rate cuts this year but that if inflation continues to stall,none may be required this year.

Earlier on Thursday, Richmond Fed President Thomas Barkin said the central bank has “time for the clouds to clear” on inflation before starting to cut rates.

On Wednesday,Fed officialsincluding central bank chief Jerome Powell stuck with a cautious rate-cut strategy.

“It’s a very careful, measured approach,” said Paul Nolte, senior wealth adviser and market strategist for Murphy & Sylvest in Elmhurst, Illinois.

In addition, he said, “there’s some nervousness coming into that (jobs) report” on Friday.

The Cboe Volatility indexposted its highest close since Nov. 1.

Stockswere higher early in the day following jobless claims data that helped to underpin rate-cut hopes. The data showed the number of Americans filing new claims for unemployment benefitsincreased more than expected last week.

Friday’s jobs data could hold more clues on the labor market and inflation.

Economists polled by Reuters expect the nonfarm payrolls for March to fall to 200,000 from 275,000 in February, while the unemployment rate will likely remain steady at 3.9%.

Money markets still currently expect a near 60% chance of at least a 25 basis-point rate cut in June, according to the CME Group’s FedWatch tool.

On the plus side,Levi Straussshares jumped 12.4% after the apparel maker raised its annual profit forecast, citing savings from its recent cost-cutting measures and fewer discounts.