The S&P 500 and Dow touched two-month lows on Thursday, a day after hawkish comments from the Federal Reserve suggested interest rates could be hiked as early as June. Minutes of the Fed's April meeting, released on Wednesday, caught the market by surprise as they showed that most policymakers thought a June rate hike was appropriate, given continued improvement in the US economy.
New York Fed President William Dudley said on Thursday that June is definitely a "live" meeting and that a rate hike in June or July is a reasonable expectation. "We are on track to satisfy a lot of the conditions" for a rate increase, said Dudley, a voting member of the central bank's policy setting committee. The Fed meets on June 14-15.
Prices for contracts on the Fed funds rate implied investors saw a 26 percent chance of a June rate increase, up from 19 percent before the minutes were released, according to CME Group. Data showed the number of Americans filing for unemployment aid fell from a 14-month high last week, the latest sign the economy was picking up speed in the second quarter.
"The main driver of what's going on, is the Fed. The market had believed that there may be one rate hike and certainly they had taken June off the table," said Ernie Cecilia, chief investment officer of Bryn Mawr Trust. "I think that (the market) had become complacent." At 12:50 pm ET (1650 GMT), the Dow Jones industrial average was down 150.21 points, or 0.86 percent, at 17,376.41, the S&P 500 was down 17.17 points, or 0.84 percent, at 2,030.46 and the Nasdaq Composite was down 50.31 points, or 1.06 percent, at 4,688.81.