Stocks fell on Thursday, building on Wednesday’s losses after the Federal Reserve delivered another interest rate hike and signaled that no pivot or rate cut will come anytime soon.
The Dow Jones Industrial Average traded 273 points lower, or 0.85%. The S&P 500 and Nasdaq Composite slid 1.1% each.
Yields spiked as traders digested the latest rate decision, putting pressure on futures. The yield on the 2-year Treasury note hit its highest level since July 2007 while the benchmark 10-year Treasury yield popped 13 basis points to 4.189%.
Traders had anticipated the central bank’s 0.75 percentage point rate increase and initially read the Fed’s statement as dovish. That initially sent stocks higher on Wednesday, but those gains reversed when Fed Chair Jerome Powell said it was “premature” to discuss a rate hike pause and that the terminal rate would likely be higher than previously stated.
“We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected,” he said.
The Dow Jones Industrial Average ended Wednesday’s trading session 505 points lower, or 1.6%. The S&P 500 dropped 2.5%, and the Nasdaq Composite was off by 3.4%.
Markets will likely continue to seesaw until it is clear inflation has cooled off and that the Fed has stopped marching rates higher, with traders split over where interest rates are headed. Any data that shows the U.S. economy isn’t slowing as the central bank tightens policy will likely weigh on stocks.
“In our view, the risk-reward for markets over the next three to six months is unfavorable, and today’s Fed statement supports that view,” wrote Mark Haefele, UBS’ chief investment officer in a note to clients Wednesday.
Meanwhile, the Bank of England implemented a 75 basis point hike on Thursday, its largest increase in 33 years, as it battles high inflation.
Investor attention Thursday also turned to October nonfarm payrolls, set to be released Friday. A good jobs number and a low unemployment rate, while good for the economy, could signal more work ahead for the Fed.
“You get a good jobs number, in other words a good unemployment rate that doesn’t go higher, then the market is in a lot of trouble,” said Guy Adami, director of advisor advocacy at Private Advisor Group, said on CNBC’s “Fast Money.”
Corporate earnings season continued, with Qualcomm, Roku and Fortinet all falling sharply in the premarket on disappointing quarterly results and forward guidance. Peloton’s stock tumbled after reporting a wider-than-expected loss, while Moderna sank on a lowered Covid vaccine sales outlook.
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