U.S. Stocks Fall, Dow Drops 500 Points: Bond Yields Surge After Warsh's Debut

At 2 a.m. Beijing time on June 18, U.S. stocks fell Wednesday, with the Dow dropping about 500 points. Large-cap tech stocks led declines, and Treasury yields surged. Several Fed officials hinted at a possible 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 earlier in the session, marking the third consecutive 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 declines, with Microsoft, Meta Platforms, Alphabet, and Amazon all closing lower. The hot IPO stock SpaceX also weighed on sentiment, falling for the first time since its listing on Friday. Gains in chip stocks like Intel and Micron helped limit some of the broader market decline.

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

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

Warsh revealed he did not submit a rate forecast, adding complexity to the outlook.

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

"The market is currently reacting mainly to the dot plot... it's much more hawkish," said Claudia Sahm, chief economist at New Century Advisors. "The inflation picture has changed a lot."

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

Jeffrey Gundlach, CEO of DoubleLine Capital, said: "He is absolutely telling you he plans to achieve price stability. That means... we won't have the loose monetary policy that everyone expected Chair Warsh might adopt when they were betting on rate cuts in the first quarter of this year. He doesn't sound like that at all today."