US stocks fell, Dow dropped nearly 500 points: yields surged after Warsh's first meeting

At around midnight Beijing time on June 18, U.S. stocks closed lower on Wednesday, with the Dow falling about 500 points. Major tech heavyweights led the decline, and Treasury yields surged. Several Fed officials hinted at the possibility of a rate hike this year to curb inflation, leaving investors uncertain about the monetary policy path.

The Dow fell 507.12 points, or 0.98%, to 51,492.55, after hitting an intraday record high earlier in the session, marking the third consecutive trading day of new highs; the Nasdaq fell 354.68 points, or 1.34%, to 26,021.65; the S&P 500 fell 91.25 points, or 1.21%, to 7,420.

Major tech heavyweights led the decline, with Microsoft, Meta Platforms, Alphabet, and Amazon all closing lower. Hot IPO stock SpaceX also weighed on sentiment, falling for the first time since its listing last Friday. Gains in chip stocks such as Intel and Micron Technology helped limit broader market losses.

This was the first Fed meeting chaired by new Chair Kevin Warsh. After the two-day meeting, the Fed held the federal funds rate steady in the target range of 3.5% to 3.75%.

According to the Summary of Economic Projections, several Fed officials expect a rate hike in 2026. The median year-end federal funds rate estimate is now 3.8%, up from 3.4% in the March projection, suggesting the committee sees at least one rate increase needed in 2026.

Warsh revealed that he did not submit his rate projection, adding more complexity to the outlook.

After the decision, U.S. Treasury yields jumped, with the 2-year yield rising 16 basis points to 4.208%.

"The market's reaction is primarily to the dot plot... its stance is much more hawkish," said Claudia Sahm, chief economist at New Century Advisors. "The inflation situation has changed a lot."

Traders also focused on Warsh's repeated emphasis during the press conference on the Fed's commitment to 'price stability,' suggesting he may not deliver the rate cuts that many expected from a nominee of President Donald Trump.

Jeffrey Gundlach, CEO of DoubleLine Capital, said: "He's absolutely telling you he intends to achieve price stability. That means... we won't get as accommodative a monetary policy as some might have expected under Chair Warsh when everyone was betting on rate cuts in the first quarter. He doesn't sound like that at all today."