S&P 500 Suffers Worst ‘Fed Day’ Since January 2021: Markets Wrap

(Bloomberg) – Stocks sold off as the Federal Reserve pushed ahead with its most aggressive tightening policy since the 1980s to tame inflation and Jerome Powell continued to sound unequivocally hawkish.

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The S&P 500 suffered its worst loss since the Fed’s decision day in January 2021 after several up and down sessions. After Powell said the Fed still had “some way to go” in its policy cycle and added that it was too early to consider a pause because interest rates could reach higher levels than previously thought. Stocks briefly rallied when he said a slower pace of rate hikes could come as soon as December.

Megacap tech stocks bore the brunt, with shares of giants such as Apple Inc and Tesla Inc falling more than 3.5%. In late trading, Qualcomm, the largest maker of smartphone processors, fell on weak forecasts. Two-year U.S. Treasury yields – more sensitive to the Fed’s impending action – reversed and pushed higher. The dollar rose.

Alon Rosin, head of institutional equity derivatives at Oppenheimer & Co., said: “When Powell made his comments without mentioning anything about pivots, or not at all, I think that’s the ‘dagger’ of the market.”

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The FOMC said “sustained rate hikes” may still be needed to raise rates to levels “constrained enough to bring inflation back to 2 percent over time,” it added in a statement. Officials unanimously decided to raise the benchmark interest rate target by another 75 basis points to a range of 3.75% to 4%, the highest level since 2008.

Notes:

Ronald Temple, head of U.S. equities at Lazard Asset Management:

“This is not an environment in which the Fed will turn or signal a turn. It would be malfeasance to do so, and the Fed knows it. In December, the Fed will release two more inflation reports and two more jobs reports. Then maybe the FOMC can signal a tightening A signal to slow down, but not before that.”

Ian Lyngen and Ben Jeffery, strategists at BMO Capital Markets:

“One thing was evident from the Fed’s tone; ‘Santa Pause’ is not coming to town.”

Edward Moya, Senior Market Analyst at Oanda:

“The stock market could struggle here as the risk of the Fed raising rates above 5.00% clearly remains.”

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Sam Stovall, chief investment strategist at CFRA:

“Of course, the data will largely determine the path of policy going forward. Our best guess is that the Fed will continue on a more hawkish path.”

Quincy Krosby, chief global strategist at LPL Financial:

“Given the assessment of the bond market, there is growing confidence that the path to the final rate will include a recession.”

U.S. companies hired more than expected in October, data on Wednesday showed, underscoring the resilience of labor demand despite the Federal Reserve’s efforts to cool the economy. A strong job market has fueled rapid wage growth, fueling rapid inflation and putting pressure on the Fed to aggressively tighten monetary policy.

The Treasury Department halted its longest quarterly long-term debt reduction in about eight years, signaling the end of a historic period of reductions in the fiscal deficit.

In corporate news, Boeing’s chief said the planemaker could generate $10 billion a year in cash by the middle of the decade once it turns its operations around after years of setbacks and missteps. China has ordered a seven-day blockade of the area around Foxconn Technology Group’s main factory in Zhengzhou, a move that will severely limit shipments to and from the world’s largest iPhone factory.

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Main events this week:

  • Bank of England interest rate decision on Thursday

  • US factory orders, durable goods, trade, jobless claims, ISM services index, Thursday

  • ECB President Christine Lagarde speaks on Thursday

  • US nonfarm payrolls, unemployment rate, Friday

Some major trends in the market:

stock

  • The S&P 500 was down 2.5% as of 4 p.m. in New York

  • The Nasdaq 100 fell 3.4%

  • The Dow Jones Industrial Average fell 1.6%

  • MSCI World Index fell 1.7%

currency

  • Bloomberg Dollar Spot Index rose 0.3%

  • Euro down 0.5% to $0.9830

  • Sterling fell 0.8% to $1.1395

  • The yen rose 0.3% to 147.77 against the dollar

cryptocurrency

  • Bitcoin falls 1.1% to $20,245.42

  • Ether falls 2.5% to $1,536.43

bond

  • The 10-year Treasury yield rose 4 basis points to 4.08%

  • German 10-year bond yields rose 1 basis point to 2.14%

  • UK 10-year bond yield fell 7bps to 3.40%

commodity

  • West Texas Intermediate crude rose 1% to $89.23 a barrel

  • Gold futures fell 0.6% to $1,640 an ounce

– With assistance from Lu Wang, Vildana Hajric and Emily Graffeo.

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