By Caroline Valetkevitch

NEW YORK/Reuters – U.S. stock markets fell sharply on Wednesday. After minutes from the U.S. Federal Reserve meeting, it was reported that central banks may increase interest rates sooner than they expected.

It fell by more than 1 percent, the largest daily percentage drop since Nov. 26, when trading resumed after the news about the Omicron coronavirus variant.

The S&P 500 and Nasdaq quickly extended their declines after the release of the minutes, which investors viewed as more hawkish than they had feared. After hitting a record-breaking high earlier in day, the Dow fell more than 1%.

The selloff was broad, with all S&P sectors ending in the red, and Wall Street’s fear gauge, the Cboe Volatility index, closing at its highest level since Dec. 21.

The minutes of the Fed’s Dec. 14-15 policy conference show central bank policymakers stating that an “extremely tight” labor market and high inflation could force the Fed into raising rates sooner. They also suggested that the Fed might reduce its asset holdings to put a brake on the economy.

David Carter from Lenox Wealth Advisors, New York stated that there are indications that the Fed is concerned about inflation and that it could prompt a belief that the Fed will tighten aggressively in 2022. He described the minutes as “more hawkish” than expected.

The S&P 500 technology sector fell 3.1% and was the biggest drag on the benchmark index, while the rate-sensitive real estate sector dropped 3.2% in its biggest daily percentage decline since Jan. 4, 2021.

The fell 392.54 points, or 1.07%, to 36,407.11, the S&P 500 lost 92.96 points, or 1.94%, to 4,700.58 and the dropped 522.54 points, or 3.34%, to 15,100.17.

Higher interest rates mean higher borrowing costs for consumers and businesses. This can lead to lower stock multiples for tech stocks and other growth stocks.

Recent increases in U.S. Treasury yields have put pressure on growth shares.

The index also suffered its biggest one-day drop since Nov. 26, while the S&P 500 financials index fell 1.3%, a day after it registered an all-time closing high.

Policymakers in December agreed to hasten the end of their pandemic-era program of bond purchases, and issued forecasts anticipating three quarter-percentage-point rate increases during 2022. Current rates of the Fed’s overnight benchmark interest rate are close to zero.

ADP National Employment reported that private payrolls increased by 807,000 last month in an early morning report. This is more than double what the Reuters polling team had expected.

This report is ahead of Friday’s Labor Department’s comprehensive, closely monitored nonfarm payrolls data.

The NYSE had a 4.32-to-1 ratio for declining securities, while the Nasdaq ratio was 4.22-to-1 in favor of decliners.

The S&P 500 posted 59 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 81 new highs and 307 new lows.

The volume traded on U.S. stock exchanges reached 12.18 billion shares, which is a significant increase from the 10.4 million average over the entire session of the past 20 trading days.