(New York) The New York Stock Exchange ended sharply lower on Wednesday, scalded by a firm message from the president of the US Federal Reserve (Fed) after what it believed was a sign of a slowdown in the ongoing tightening of monetary policy.
Updated yesterday at 4:33 p.m.
The Dow lost 1.55%, the NASDAQ fell 3.36% and the broader S&P 500 fell 2.50%.
The Fed raised its key rate by 0.75 percentage point on Wednesday, as expected, to a range between 3.75% and 4%, the most in nearly 15 years.
In a statement announcing the decision, the Fed’s monetary policy committee said it would “take into account the cumulative effect of monetary tightening” that has already been done on economic activity in determining the trajectory of rates.
The note “sent a signal to markets that the Federal Reserve will be very cautious after two more rate hikes,” explained Tom Cahill of Ventura Wealth Management.
“But the subsequent press conference (from Chairman Jerome Powell) reaffirmed that the Fed still has a long way to go. […] and that it was premature to talk about a pause in rate hikes, and that knocked the market down,” he added.
In the red before the Fed’s announcement, the Dow Jones took as much as 1.28% before falling.
“Inflation is proving to be a tough opponent to beat, and the Fed has warned against overly optimistic expectations of a return to more accommodative monetary policy,” noted Susannah Streeter at Hargreaves Lansdown.
Traders now estimate a more than 70% chance the Fed rate will rise above 5% by next May, a scenario they didn’t even foresee a month ago.
After the release, bond rates rebounded and were higher than their previous day’s levels. The yield on 10-year US government bonds was 4.08%, up from 4.04% a day earlier.
Unsurprisingly, the prospect of higher rates for an extended period has chilled the tech sector, which is heavily dependent on the cost of cash to fund its growth.
Apple (-3.73%), Microsoft (3.54%), Alphabet (-3.79%), Tesla (-5.64%) and Amazon (-4.82%) all shined, with this latest decline even to the lowest level since March 2020, in the first days of the pandemic.
The move hit Airbnb (-13.43% to $94.41), despite posting better-than-expected revenue and net profit.
The platform predicts a slight slowdown in booking growth for the last quarter of the year compared to the July-September period.
Another victim, AMD (-1.73% to $58.63), which reported results below analysts’ forecasts and cut its full-year projections after the stock market on Tuesday. The semiconductor maker sees a slowdown in PC sales.
Operators welcomed the announcement from Boeing (+2.81% to $147.41), which released its medium-term forecasts on Wednesday, including revenue similar to pre-crisis 737 MAX levels in 2025 or 2026.
Match Group ignored the headwinds for tech (+4.19% to $45.74) after reporting a slightly better-than-expected turnaround, led by dating site Tinder, which offset a slowdown in other platforms such as Meetic, OkCupid and Match.
Pharmacy chain CVS Health (+2.30% to $96.80) posted quarterly revenue well above expectations, inflated by volume growth and price increases.
The market ignored the group’s surprise loss attributable to exceptional items.
In particular, they include providing $5.2 billion as part of a settlement agreement to settle opioid prescription lawsuits.
Media group Paramount Global (-12.42% to $16.79) suffered disappointing sales and earnings, particularly as traditional TV (notably CBS and MTV) suffered a decline in advertising revenue.
Estée Lauder fell (-8.13% to $189.96) after it cut its forecast for the full staggered fiscal year 2023 (July 2022 to June 2023).
The cosmetics group cited a drop in demand from travelers (airports) in Asia and a decision by US retailers to reduce their inventories.