On Thursday, Wall Street plunged in a widespread sell-off as investor risk appetite was dampened by concerns that the Federal Reserve’s tight monetary policy will last longer than expected.
The day after Fed Chairman Jerome Powell warned that inflation still had a long way to go before achieving the central bank’s 2% target, all three major U.S. market indexes fell more than 1%, and benchmark 10-year U.S. Treasury yields reached a 16-year high.
The S&P 500 and the Nasdaq closed at their lowest levels since June as interest rate-sensitive megacaps, headed by Amazon.com, Nvidia Corp, Apple Inc., and Alphabet Inc., drove the indexes down.
Following a two-day monetary policy meeting, the central bank maintained the Fed funds target rate at 5.25%–5.50% on Wednesday, as anticipated.
However, updated economic forecasts, including the highly followed dot plot, showed that interest rates will remain high through the following year, dashing prospects for policy relaxation before 2025.
The system will be put under more stress and the economy will be under more pressure, according to Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta. It gives folks another opportunity to assert that the higher rates’ lag time, which we are only now beginning to feel, might truly bite.
The likelihood that there won’t be a soft landing has increased, according to Martin, who also cited the return of student loan payments, the UAW strike, a probable government shutdown, higher Treasury yields, rising crude costs, and a strengthening dollar as contributing factors to the economy’s pressure from higher rates.
The unexpected 9% decline in initial claims for unemployment insurance in the United States, to the lowest level in eight months, supported the Fed’s view that the labour market is still excessively tight, pushing up wages, and that the economy is sturdy enough to endure higher rates for a longer period of time.
As global policy tightening to control inflation approaches its pinnacle, “higher for longer” has come to symbolise the central banks of the world’s largest economies.
When it comes to central banks, the headlines this morning were rather interesting,” Martin added. “They were all hawkish,” I said.
At 4:12 PM ET, the Nasdaq Composite sank 245.14 points, or 1.82%, to 13,223.99, the S&P 500 dropped 72.2 points, or 1.64%, to 4,330, and the Dow Jones Industrial Average slid 370.46 points, or 1.08%, to 34,070.42.
The S&P 500’s 11 major industries all fell more than 1% of their value, with real estate stocks experiencing their largest one-day percentage decline since March.
Following news that executives at Alphabet-owned Google pondered dumping Broadcom as a supplier of artificial intelligence processors as early as 2027, the stock of the semiconductor manufacturer fell 2.7%.
Philadelphia’s chip index decreased by 1.8%.
The day after going public, Klaviyo Inc. gained 2.9%, while Arm Holdings, another recent IPO, lost 1.4% and closed just a dollar above its $51 offer price.
After the package service business FedEx announced a significant profit beat, its stock price increased by 4.5%.
Following the announcement that Rupert Murdoch will stand down as chairman, Fox Corp and News Corp saw gains of 3.2% and 1.3%, respectively.
On the New York Stock Exchange, declining issues outnumbered rising ones 5.89 to 1; on the Nasdaq, decliners had a 2.80 to 1 advantage.
The Nasdaq Composite registered 22 new highs and 373 new lows, while the S&P 500 produced three new 52-week highs and 29 new lows.
10.76 billion shares were traded on U.S. exchanges, exceeding the 10.12 billion average for the entire session for the previous 20 trading days.