Dow falls more than 100 points, commodities retreat on concern about the Fed removing stimulus

Major U.S. stock averages retreated Thursday as concern grew that the Federal Reserve could remove stimulus this year, slowing an economy hurt by the spread of the Covid delta variant.

The Dow Jones Industrial Average dropped around 145 points or 0.4%. The Dow tanked by 380 points on Wednesday for its worst performance in a month as meeting minutes from the Fed’s gathering in July showed the central bank has started eyeing tapering its $120 billion in monthly bond purchases before the year-end.

The S&P 500 shed 0.4% and the Nasdaq Composite lost 0.5%.

“The minutes reflect a Fed that is prepared to accelerate its taper timeline to perhaps the next few months,” said Sean Bandazian, investment analyst at Cornerstone Wealth. “Both the Fed and market participants learned lessons from the Taper Tantrum. While we expect less of a surprise this time around there is still reason to believe we will see volatility throughout areas of the market with high sensitivity to interest rates.”

WTI crude oil dropped more than 3%, falling below $64, and copper lost about 2% on concern about global growth without the Fed bond-buying support. The 10-year Treasury yield fell more than 2 basis points to 1.25%. (1 basis point equals 0.01%.)

Goldman Sachs cut its economic growth forecast for the current quarter to 5.5% from 9% Wednesday night, adding to the negative sentiment. The firm also sees higher inflation than expected for the rest of the year.

“The impact of the Delta variant on growth and inflation is proving to be somewhat larger than we expected,” wrote Jan Hatzius, chief economist at Goldman Sachs, in the note. “Spending on dining, travel, and some other services is likely to decline in August, though we expect the drop to be modest and brief. Production is still suffering from supply chain disruptions, especially in the auto industry, and this is likely to mean less inventory rebuild in Q3.”

Mixed economic data released Thursday did not appear to stem the market slide. First-time jobless claims last week hit a new pandemic-era low at 348,000, declining more than expected from the week prior.

The Philadelphia Fed Index, a gauge of growth in the region, still indicated expansion but at a level worse than expected. The August reading was 19.4, below the 22 consensus of economists polled by Dow Jones.

Stocks closely linked to the economy led losses. Steelmaker Nucor lost about 3%. Oil companies Devon Energy and Occidental Petroleum shed roughly 2% each. Miner Freeport-McMoRan fell around 45%. General Motors fell more than 1%. Reopening plays like airlines and hotels were also lower.

Robinhood shares tumbled 9% after its first earnings report as a public company. The app warned investors that its third-quarter results could be affected by a slowdown in trading.

“For the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter,” the company said in the earnings release.

For the week through Wednesday, the Dow and S&P 500 are each down more than 1%. The Nasdaq Composite is lower by more than 2%.