Fundamental Analysis

Wall Street Extends Losses After Fed Signals More Rate Hikes

U.S. stocks extended losses on Thursday as investors feared the Fed was far from signaling a less hawkish stance in its fight against inflation.

Stocks initially received a boost on Wednesday after the Fed raised interest rates by 75 basis points as expected and the policy announcement left open the possibility of smaller increments in the future.

The gains, however, evaporated as Fed Chair Jerome Powell said it was “very premature” to discuss when the central bank might pause the rate hikes.

The benchmark S&P 500 (.SPX) marked its biggest percentage decline in almost a month with a 2.5% loss in the previous session.

While traders are still split between the odds of a 50 bps and 75 bps rate hike in December, the peak Fed funds rate is seen climbing to 5% or higher next year, compared with a prior estimate of 4.50%-4.75% rise. .

“The implication that the terminal rate could be over 5% scared markets that rate hikes are going to be a bit more frequent and maybe a bit higher going forward,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

Meanwhile, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, providing further evidence of a strong labor market.

The more comprehensive nonfarm payrolls report due on Friday will be crucial as investors try to gauge whether the Fed’s rate hikes have significantly cooled the economy.

Another set of data on Thursday showed the U.S. services industry grew at its slowest pace in nearly 2-1/2 years in October and businesses continued to face higher input prices, confirming that inflation was shifting to services from goods.

At 9:46 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 218.25 points, or 0.68%, at 31,929.51, the S&P 500 (.SPX) was down 42.28 points, or 1.12%, at 3,717.41, and the Nasdaq Composite (.IXIC) was down 146.95 points, or 1.40%, at 10,377.85.

Shares of megacap technology companies extended losses, with Apple Inc (AAPL.O), Microsoft (MSFT.O) and Alphabet (GOOGL.O) down between 0.3% and 2% as the 10-year U.S. Treasury yield hit its highest level since Oct. 25.

Among companies reporting their quarterly results, Moderna (MRNA.O) fell 2.6% after cutting its annual sales forecast for its COVID-19 vaccine.

Qualcomm Inc (QCOM.O) and Roku Inc (ROKU.O) tumbled 8.1% and 15.1%, respectively, after their holiday quarter forecasts fell below expectations.

Declining issues outnumbered advancers for a 3.92-to-1 ratio on the NYSE and a 2.44-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 43 new lows, while the Nasdaq recorded 17 new highs and 161 new lows.

Source

Arvinth Akash

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