Wall Street’s main indexes see-sawed before slumping in the final 30 minutes of trading to close lower on Wednesday, as investors absorbed the Federal Reserve’s latest rate hike and future policy commentary.
At the end of its two-day meeting, the Fed lifted its policy rate by 75 basis points for the third time to a 3.00-3.25% range. Most market participants had expected such an increase, with only a 21% chance of a 100 bps rate hike seen prior to the announcement.
However, policymakers also signaled more large increases to come in new projections showing its policy rate rising to 4.40% by the end of this year before topping out at 4.60% in 2023. This is up from projections in June of 3.4% and 3.8% respectively.
Rate cuts are not foreseen until 2024, the central bank added, dashing any outstanding investor hopes that the Fed foresaw getting inflation under control in the near term.
With the mix of the expected and the slightly-unexpected, respectively in the form of the size of the rate hike and the path for future increases, markets swung back and forth in the aftermath of the 2 p.m. ET announcement as investors digested the news.
Declines accelerated in the final 30 minutes of trading though.
“Markets were already braced for some hawkishness, based on inflation reports and recent governor comments,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
“But it’s always interesting to see how the market reacts to the messaging. Hawkishness was to be expected, but while some in the market take comfort from that, others take the position to sell.”
According to preliminary data, the S&P 500 (.SPX) lost 66.25 points, or 1.72%, to end at 3,789.68 points, while the Nasdaq Composite (.IXIC) lost 205.16 points, or 1.80%, to 11,219.89. The Dow Jones Industrial Average (.DJI) fell 524.24 points, or 1.71%, to 30,181.99.
The S&P 500 has lost 19% so far this year on worries of a central bank-induced recession amid recent warnings of slowing demand from delivery firm FedEx and an inverted U.S. Treasury yield curve.
“I think a recession is very likely. The Fed regards a recession as regrettable, but necessary to fight inflation,” Grisanti said.
The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 27 points, inching closer to a more than two-month high.
Focus will also be on new economic projections, due to be published alongside the policy statement at 2 p.m. ET (1800 GMT) on Wednesday.
Goldman Sachs cut its forecast for 2023 U.S. GDP late on Friday as it projects a more aggressive Fed and sees that pushing the jobless rate higher than it previously expected.
“We think a 100 bps hike would unnerve Wall Street ... and would increase the likelihood that the FOMC will eventually overtighten and lessen the possibility of achieving a soft landing,” Sam Stovall, chief investment strategist at CFRA, wrote in a note.
At 9:48 a.m. ET, the Dow Jones Industrial Average was down 107.48 points, or 0.35%, at 30,714.94, the S&P 500 was down 13.16 points, or 0.34%, at 3,860.17, and the Nasdaq Composite was down 42.42 points, or 0.37%, at 11,405.99.
A rebound in industrial stocks after a sharp drop on Friday helped cap losses on the indexes.
Tech heavyweights Apple Inc, Amazon.com, Alphabet Inc and Microsoft Corp fell between 0.3% and 0.6%.
Take-Two Interactive Software Inc slid 2.3% following a report that a hacker had leaked the early footage of Grand Theft Auto VI, the next installment of the best-selling videogame.
Autozone Inc rose 0.6% after the auto parts retailer posted upbeat quarterly sales and profit on steady demand and better inventory availability.
Declining issues outnumbered advancers for a 1.69-to-1 ratio on the NYSE and a 1.90-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week high and 18 new lows, while the Nasdaq recorded 13 new highs and 178 new lows.