Stocks drop as investors reassess Fed comments


US stocks fell, with technology stocks advanced, as investors assessed the implications of the Federal Reserve’s most aggressive tightening of monetary policy in more than two decades.

The S&P 500 was down 1.5% in early trading Thursday. The technology-focused Nasdaq Composite Index lost 2.2%, and the Dow Jones Industrial Average fell 1.2%.

The retreat came after a day Major US stock indexes rosewith the Dow rising more than 900 points, its biggest one-day gain since 2020. On Wednesday, central bank officials agreed to Increase the interest rate by half a percentage pointand raised the federal funds rate to a target range between 0.75% and 1%.

But it was Federal Reserve Chairman Jerome Powell who revitalized the markets after he said officials had not seriously considered raising interest rates by three-quarters of a percentage point. Instead, he noted, additional increases of half a point may be warranted at upcoming meetings.

Powell’s comments provided comfort to investors who were increasingly afraid that the Federal Reserve could raise interest rates too much and too quickly and eventually push the economy into recession.

By Thursday, investor optimism was beginning to fade. Even as interest rates increase further in the coming months, investors still face the sharpest tightening of US monetary policy since 2000 — the last time the central bank raised rates by half a point. Many investors are now wondering how far the Fed might raise interest rates over the next two years amid rising inflation and how that might spread across the economy and corporate earnings.

“Yesterday the market had a comfortable recovery,” said Sima Shah, chief strategist at Principal Global Investors. However, she said, by Thursday, more challenging environmental realities for the stocks were beginning to settle. Although she said she believes inflation has peaked or is close to peaking, other macroeconomic considerations will continue to weigh on investors and path interest rates, she said.

“Given all the external factors – mainly the Covid-19 lockdowns in China, the intensification of supply chain problems and the conflict between Russia and Ukraine that will lead to higher energy prices … there is a lot of uncertainty,” she said.

Federal Reserve Chairman Jerome Powell said on Wednesday that the central bank had agreed to raise the interest rate by half a percentage point in an effort to bring down inflation that has reached its highest levels in four decades. Photo: Win McNamee / Getty Images

On Thursday morning, those tensions were seen throughout the market. Growth stocks were hit particularly hard. chip makers

Advanced Micro DevicesAnd

nvidia

And

NXP Semiconductor

They all decreased by at least 2.8%. Shares of technology company Megacap also fell, with

ID pads

drop 1.7% and

Netflix

4.6%.

Higher interest rates can reduce the attractiveness of technology stocks by reducing the value investors place on their future earnings. Higher returns in general also enhance the attractiveness of fixed income products against riskier assets such as stocks.

buck the trend, arrow

Twitter

It jumped 4% to $51.02 after the Tesla CEO

Elon Musk

He said he had received letters from investors More than $7 billion in new funding committed To boost the stock portion of his bid to buy the social media company. Last month, Twitter agreed a deal with Mr. Musk to make the company private for $54.20 a share.

Reservation collectibles

It jumped 6.3% after its revenue beat expectations and said it saw global travel trends strengthen in the current quarter.

etsy

It fell 17% after the online market issued lower-than-expected guidance for the current quarter.

shares

Weaver

It also fell, losing 20%, after the online home goods retailer posted a larger-than-expected quarterly loss.

Shopify‘s

First-quarter earnings missed analyst expectations, sending the stock down 17%.

In the bond market, the yield on the benchmark 10-year Treasury rose to 3.021% from 2.914% on Wednesday. Bond prices and yields They move in opposite directions. On Wednesday, bonds posted a rebound along with stocks before losing steam.

Traders worked on the floor of the New York Stock Exchange on Wednesday.


picture:

Justin Lin/Shutterstock

Assets that investors consider safer were among those that will rebound on Thursday as money managers look for havens as stocks and bonds tumbled side by side. Even after Wednesday’s rally, some strategists and investors said they were hesitant about the stock market outlook in the coming weeks and months.

“We are struggling to see who will be a huge buyer of the shares in the next couple of weeks,” said Viraj Patel, global macro strategist at Vanda Research. “It’s a waiting game for that catalyst…You need more conviction from the data, either to show inflation has peaked or the economy is slowing and the Fed won’t need to be as strong.”

The WSJ Dollar IndexWhich measures the US currency against a basket of 16 other baskets, up 0.9%. On Wednesday, the index fell 0.9%, its biggest drop since November 2020. The dollar’s status as the world’s reserve currency makes it a particularly attractive haven for investors.

Gold, another preferred haven, also rose 1.6% to $1,898.40 an ounce.

Sterling fell 2% against the dollar to $1.2378 after the Bank of England raised interest rates, but signaled that. Likely to move with caution In the coming months, fears grow about sliding into recession.

In the oil markets, Brent crude, the international benchmark for oil, rose 2.7% to $113.02 a barrel. On Wednesday, Brent crude posted its biggest one-day gain in more than three weeks after the European Union proposed a six-month ban on imports of Russian crude and on refined oil. Oil products from the country by the end of the year. The Organization of the Petroleum Exporting Countries and its allies, called the OPEC+ community, are expected to meet on Thursday to discuss production targets.

Offshore, the Stoxx Europe 600 continental index was up 0.7%. Banks, technology stocks and transport companies rose. Italian bank

UniCredit

It rose 5.3% after its revenue came in above analyst expectations.

Airbus

It jumped 7.3% after the aircraft manufacturer reported an increase in net income and moved to increase production One of its best-known single-aisle A320 aircraft.

coincidence

gained 3.7% After growing its profits in the first quartersupported by higher commodity prices.

In Asia, Hong Kong’s Hang Seng Index is down 0.4% and the Shanghai Composite Index is up 0.7%. Markets in Japan are closed for a holiday.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com

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