Stocks fell Thursday in a sharp reversal, as a jump in Treasury yields offset the optimism coming from another batch of solid corporate earnings.
The Dow Jones Industrial Average traded lower by 368.03 points, or 1.05%, to close at 34,792.76. The S&P 500 dropped 1.48% to 4,393.66, and the Nasdaq Composite slid 2.07% to 13,174.65.
The major averages were all up sharply earlier in the day, as traders cheered strong quarterly earnings. The Dow was up as much as 331 points, or 0.9%; the S&P 500 and Nasdaq each jumped more than 1% at their highs of the day.
Treasury yields were up sharply on the day, with the benchmark 10-year rate trading above 2.9% for much of the session — near its highest level since late 2018.
The 10-year started the year near 1.5% and has shot up as the Federal Reserve tightens monetary policy to get a hold of soaring prices in the U.S.
"Although we expect inflation to peak very soon, if it hasn't already done so, continued supply chain disruptions and a slow increase in labor force participation due to retirements and continued concerns over Covid, could easily keep the inflation rate more than double the Fed's 2% target," wrote Joseph Kalish, chief global macro strategist at Ned Davis Research.
"As a result, the Fed may need to hike rates more than the peak 3.25% to 3.50% range currently priced into the markets a year from now," he added.
Thursday's move in rates came as Fed Chairman Jerome Powell signaled that bigger rate hikes may be coming next month.
Speaking at the International Monetary Fund Debate on the Global Economy on Thursday afternoon, Powell said it is "appropriate in my view to be moving a little more quickly" to raise interest rates. "I also think there is something to be said for front-end loading any accommodation one thinks is appropriate. ... I would say 50 basis points will be on the table for the May meeting."
However, many high profile investors are skeptical that the Fed can get inflation under control without causing economic damage.
"They're going to need three times — skill, time and luck — to get to a soft landing," Allianz chief economic advisor Mohamed El-Erian said on "Closing Bell."
Thursday's sell-off was broad, but some strong individual moves after earnings helped keep the major indexes from even sharper declines.
Energy and materials stocks were a weakness for the market on Thursday, with Mosaic falling 9.4% and Chevron losing 4.6%. Clean energy stocks also struggled, with the Invesco Solar ETF sliding nearly 7%.
Notable declines in the tech sectors came from Nvidia, falling about 6%, and Netflix and Alphabet, losing 3.5% and 2.5%, respectively. Elsewhere on Wall Street, Warner Bros. Discovery retreated 6.9% after news of the company shutting down CNN+.
Investors also pored over the latest quarterly reports, which included stronger-than-expected numbers from Tesla.
Tesla shares jumped more than 3% after its first-quarter numbers beat analyst expectations, thanks in part to strong car deliveries. Several analysts lauded Tesla after the release, with one calling it a "core holding." The stock did close well off its highs of the session, however.
Airlines were another bright spot. United added roughly 9% after the airline forecasted a profit in 2022. CEO Scott Kirby told CNBC on Wednesday he'd never seen "such a hockey stick increase of demand," referring to business travel and leisure bookings. American rose 3.8% after projecting a pre-tax profit for the second quarter.
More than 17% of S&P 500 companies have reported earnings through Thursday's open, with nearly 81% of those names beating analyst expectations, according to FactSet.
"I'm cautiously optimistic that earnings will keep beating, with a couple of outliers," Jeff Kilburg, chief investment officer, at Sanctuary Wealth, told CNBC.
"'Boring' names – American staple names that we forgot about – are doing better than expected," he continued, citing IBM as an example. "It's a big divergence from sentiment, especially with the 10-year [Treasury yield] nearly doubling. The shift from growth to value is really hitting its stride."
With Thursday's declines, the Nasdaq Composite is now down 1.3% for the week, while the S&P 500 is clinging to a marginal gain. The Dow is up about 1% for the week.
— CNBC's Jesse Pound contributed to this report.