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Dow Jones and S&P 500 slide 5 days after biggest Fed interest rate hike since 1994

U.S. stocks ended a choppy session on Wednesday, with the Dow Jones and S&P 500 ending a five-session skid, after Federal Reserve Chairman Jerome Powell oversaw the biggest interest rate hike since 1994 and pledged to fight inflation.

What happened
  • The Dow Jones Industrial Average DJIA,
    +1.00%
    rose 303.70 points, or 1%, to end at 30,668.53, after briefly climbing 600 points.

  • The S&P 500 SPX,
    +1.46%
    advanced 54.51 points, or 2.5%, closing at 3,789.99.

  • The Nasdaq Composite COMP,
    +2.50%
    gained 270.81 points, or 2.5%, ending at 11,099.15.

  • All three indices posted their best daily percentage gain since June 2, according to Dow Jones Market Data.

Stocks ended mostly lower on Tuesday, with the Dow Jones and S&P 500 posting their lowest closes since the start of 2021. The S&P 500 had lost 10.2% in the past five trading days, the worst falling since March 2020. The Nasdaq rose 0.2%.

What drove the market

Stocks closed higher in choppy trade, after the Federal Reserve pulled the trigger for a 75 basis point rate hike on Wednesday, its biggest such hike in nearly 30 years, as the central bank is struggling to quickly quell inflation which has proven difficult to control from a four decade high.

In a statement, Fed officials said they now expect the central bank’s key rate to climb to around 3.4% by the end of this year, while ending 2023 around 3.8%. They also expect the economy to slow to a growth rate of 1.7% this year.

“The tightening of financial conditions that we have seen in recent months should continue to temper growth and help better balance demand with supply,” said President Jerome Powell, while saying he was aware of the challenges facing American households. face, in an afternoon. press conference.

Lily: Fed Sees Inflation Surpassing 5% in 2022, Then Falling Rapidly Due to Higher Rates

Many Wall Street economists were expecting a 75 basis point rise, instead of the smaller 50 basis point move as previously telegraphed, after Friday’s hot inflation reading, including the Economist of Goldman Sachs and JP Morgan.

Barclays economists, following the Fed’s decision, said they now expect the Fed to return to a 50 basis point hike in July, due to signs of a slowdown in consumer spending and of a cooling of the American real estate market.

“You’re seeing a positive reaction in the markets after Powell said the Fed would be aggressive in tackling inflation,” Shawn Snyder, head of investment strategy at Citi Personal Wealth Management, said in an interview.

Instead of a “death by a thousand cuts,” Snyder said there was now “more clarity about what the policy is going to be.”

Powell said the Fed was not trying to push the economy into a recession, but also that some aspects of the surprisingly strong consumer price inflation data released last week remained beyond the central bank’s control. May’s reading dealt a blow to those who hoped price increases had peaked. It also sparked another rout in stock markets and other assets, pushing the S&P 500 index into bearish territory.

“There’s a very strong possibility that the Fed will go too far and inadvertently cause a recession,” Jeff Schulze, investment strategist at ClearBridge Investments, said over the phone.

While pointing to Friday’s inflation data, he said traders expected the Fed to launch the second fastest rate hike cycle since 1955, eclipsed only by the rate hike cycle in years 1980 under former Fed Chairman Paul Volcker. His aggressive stance has been credited with breaking the back of inflation, triggering a recession.

“If inflation continues to surprise on the upside, it’s likely to tighten more than it currently thinks,” Comerica Bank chief economist Bill Adams said in comments by email afterward. the Fed press conference.

“On the other hand, if the current downturn in the economy turns into an outright recession, potentially including lower house prices, the Fed could raise less than expected or start cutting interest rates. interest sooner than expected.”

Economic data on Wednesday showed U.S. retail sales fell 0.3% in May, below forecasts, while sales minus autos rose 0.5%. Excluding automobiles and gasoline, sales rose 0.1%.

The Fed’s decision follows a surprise announcement from the European Central Bank, which held an emergency meeting on Wednesday to “discuss current market conditions.”

See: Why the ECB called an emergency meeting as it battles the risk of ‘fragmentation’

The rare ad hoc ECB meeting, which comes just a week after the central bank’s meeting, helped push down Italian bond yields and rally the euro EURUSD,
-0.06%
and European stocks SXXP,
+1.42%.

Companies in the spotlight
  • Apple Inc.. AAPL,
    +2.01%
    shares rose 2% after it was announced that Major League Soccer would be exclusively available on Apple TV from 2023, under a 10-year contract estimated at $250 million.

  • Redfin Corp. RDFN sharing,
    -1.23%
    fell 1.2% after CEO Glenn Kelman said in a blog post that he had asked 8% of the company’s employees to leave as the US housing market cooled.

  • Shares of Hertz Global Holdings Inc.. HTZ,
    +5.05%
    rose 5.1% after the car rental company announced a new $2 billion share buyback program.

  • Robinhood Markets Inc.
    HOOD,
    -2.49%
    Shares fell 2.5% after an Atlantic Equities analyst downgraded its rating for the retail brokerage to underweight from neutral, citing weakening market conditions.

other assets
  • Yields on US Treasuries were falling, with that of the BX:TMUBMUSD10Y 10-year note down 9.3 basis points to 3.389%, after hitting a more than decade high.

  • The ICE US Dollar Index DXY,
    -0.19%,
    a measure of the currency against a basket of six major rivals, fell 0.8%.

  • Oil futures closed lower, with the US benchmark CL.1,
    +0.75%
    down 3% to $115.31 a barrel. GC00 gold futures,
    +0.77%
    rose 0.3% to close at $1,819.60 an ounce.

  • BitcoinBTCUSD,
    +2.87%
    saw renewed pressure, dropping 2% to trade near $21,700.

  • The Stoxx Europe 600SXXP,
    +1.42%
    rose 1.4%, while London’s FTSE 100 UKX,
    +1.20%
    advanced by 1.2%.

  • The Shanghai Composite SHCOMP,
    +0.25%
    ended up 0.5%, while the Hang Seng HSI index,
    -0.40%
    rose 1.1% in Hong Kong and Japan Nikkei 225 NIK,
    +1.15%
    down 1.1%.

—Barbara Kollmeyer contributed reporting

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Post expires at 4:21am on Sunday June 26th, 2022