The S&P 500 fell on Wednesday in wild action as traders tried to interpret the Federal Reserve’s next move after it delivered another widely expected three-quarter point interest rate hike.
The S&P 500 was last down 1.67% and Nasdaq Composite was off by 2.46%. The Dow Jones Industrial Average was last down 272 points. The major averages bounced in violent action between gains and losses following the Fed’s afternoon decision.
The Fed implemented another widely expected 0.75 percentage point rate increase, its fourth hike in a row of that caliber, as it battles high inflation and signaled a potential shift in its policy stance.
But more importantly, the new statement hinted at a possible policy change, saying the Fed “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Stocks initially surged as traders cheered the hint of a possible slowing in tightening. However, major averages then declined when Fed Chair Jerome Powell said in a press conference that rates could go higher still.
“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,” said Powell.
“The initial reaction is investors were looking for some acknowledgment there’s two-way risk … they at least opened the door for that,” said Keith Lerner, Truist’s chief market strategist. “They’ve done these super-sized rate hikes. That works with a lag. The market wants the Fed to move away from that myopic focus on inflation. They did that.”
The central bank’s decision comes after the release of strong jobs data, with better-than-expected private payrolls data for October painting a resilient labor market. The JOLTS report Tuesday also conveyed a tight jobs market despite the Fed’s aggressive tightening clip.
In other economic news, mortgage application data for last week came in flat despite a slight tick lower in rates.
Earnings continued with strong results from CVS Health. Advanced Micro Devices rose despite a top and bottom line miss, and Boeing shares gained on strong cash flow comments.
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