By Lawrence Delevingne
BOSTON (Reuters) -Wall Street's headache over the potential of a relatively fast pullback from stimulus by the U.S. Federal Reserve lingered Thursday as stocks sold off again and government bond yields mostly marched higher.
The Dow Jones Industrial Average fell 170.64 points, or 0.47%, to 36,236.47, the S&P 500 lost 4.53 points, or 0.10%, to 4,696.05 and the Nasdaq Composite dropped 19.31 points, or 0.13%, to 15,080.87.
Stocks fell sharply in Asia and Europe too after Wall Street's technology-heavy Nasdaq index plunged more than 3% on Wednesday.
Minutes released on Wednesday from the Fed's December meeting https://www.reuters.com/markets/us/fed-may-need-hike-rates-faster-reduce-balance-sheet-quickly-minutes-show-2022-01-05 had shown that a tight jobs market and unrelenting inflation could require the U.S. central bank to raise rates sooner than expected and begin reducing its overall asset holdings.
The Fed news "took stock markets unawares this week, creating a level of discomfort with more speculative stocks," analyst Christopher Whalen of Whalen Global Advisors LLC wrote in a note Thursday.
As stocks struggled, U.S. Treasury yields on most maturities rose again on Thursday as investors fretted over the Fed's more hawkish stance, surging inflation and a deluge of supply.
Benchmark 10-year yields rose to 1.7530%, the highest since March 2021, and were last up slightly on the day to 1.7246%. U.S. 2-year yields, which track near-term rate expectations, rose to the highest since early March 2020, the start of the global spread of COVID-19, at 0.8736%.
Adding to the worries on Thursday was data from the U.S. Labor Department https://www.reuters.com/markets/us/us-weekly-jobless-claims-increase-moderately-2022-01-06 showing an increase in the number of Americans filing new claims for unemployment benefits last week, and the Institute for Supply Management (ISM) noting that non-manufacturing activity fell in December.
"Despite the weaker than expected ISM today, the market continued to increase how much it is pricing for the Fed to hike in 2022 and 2023 – now more than 5.5 hikes is priced before the end of 2023," Nancy Davis, founder of Quadratic Capital Management in Greenwich, Connecticut, said in an email.
Investors will now look ahead to a key U.S. jobs report on Friday, which will follow new euro zone inflation data that the European Central Bank will watch closely.
The dollar continued its climb towards a 14-month high, after riding the tailwind of the Fed minutes. The dollar index last gained 0.105%, with the euro down 0.19% at $1.1291.
Cryptocurrencies were among the hardest hit in the overnight market selloff, with bitcoin falling more than 5%. It last traded at around $43,164, down 0.63% on the day.
Gold prices slid to a two-week low on Thursday, pressured by rallying U.S. Treasury yields.
Spot gold dropped 1.2% to $1,788.22 an ounce. U.S. gold futures fell 2.1% to $1,787.10 an ounce.
In commodity markets, oil prices rose sharply on Thursday, extending their new year's rally, on escalating unrest in OPEC+ oil producer Kazakhstan and supply outages in Libya.
U.S. crude rose 2.1% to $79.50 per barrel and Brent was at $81.99, up 1.5% on the day.
(Reporting by Lawrence Delevingne; Editing by John Stonestreet, Lisa Shumaker and Marguerita Choy)