Wall Street’s main stock indexes fell more than 2 percent on Thursday as the Federal Reserve’s long-running policy tightening guidance dampened hopes that the rate hike cycle would soon end.
The Dow Jones Industrial Average fell 727 points, or 2.1%, to 33,238, the S&P 500 fell 2.4% and the Nasdaq Composite fell 2.9%.
The central bank raised rates by 50 basis points on Wednesday, slowing from four consecutive 75 bps hikes, although Fed Chairman Jerome Powell said he was not convinced that recent signs of weakening inflation had yet won the battle.
The Fed’s policy-setting committee has forecast it will continue to raise rates above 5 percent in 2023, a level not seen since the 2007 recession.
“The problem is that the market is looking for a rate cut in 2023, and that doesn’t fit any credible economic scenario, because you would have to have a sharp drop in economic activity and a rapid deterioration in the labor market,” said Willem Sels, global. CIO, Private Banking and Wealth Management at HSBC.
Money market participants now expect at least two 25 bps rate hikes next year and borrowing costs to peak at 4.9% in the first half, before falling to 4.4% by the end of the year.
Wall Street’s main indexes have staged a strong recovery since hitting 2022 lows in October on expectations of a less aggressive Fed, but the rally stalled in December on mixed economic data and worrisome corporate forecasts.
Investors on Thursday also absorbed economic data showing a sharper-than-expected drop in retail sales in November and a drop in the number of Americans who filed for unemployment benefits last week, signaling a tightening labor market.
“Today’s data confirms what Powell said yesterday that it’s going to take time and the market wants to get through the confusing parts and move forward faster and it can’t because the Fed won’t let it,” said Sameer Samana, senior global director at Wells Fargo Investment Institute. market strategist.
Both the Bank of England and the European Central Bank raised key interest rates by 50 bp each, signaling an extended hike to ease spiraling inflation.
Shares of megacap companies, which are sensitive to rising rates, fell. Apple, Amazon and Microsoft fell between 1% and 3%.
Netflix is down 6.8% year over year Media report The entertainment services company said it will allow its advertisers to get their money back after losing viewers.
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