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Market Snapshot: Dow ends down 200 points, Nasdaq falls 1.7% after Fed officials say more interest rate hikes could be needed to cool inflation


U.S. stock indexes traded lower in the final hour of trade on Wednesday, as investors digested comments from a cluster of Federal Reserve speakers which exacerbated concerns that the central bank still has more interest rate rises ahead and will keep monetary policy restrictive.

How are stock indexes trading?

The Dow Jones Industrial Average

dropped 233 points, or 0.7% to around 33,922

The S&P 500

went down 48 points, or 1.2% to 4,114

The Nasdaq Composite 

lost 216 points, or 1.8% to 11,897

On Tuesday, stocks ended a wild trading session with solid gains after remarks by Fed Chair Jerome Powell that investors took as optimistic on the ability to bring down inflation despite his warning that the process would be long and bumpy.

What’s driving the markets?

U.S. stock indexes were trading lower on Wednesday as traders heard from a cluster of Fed officials on Wednesday, including appearances by New York Fed President John Williams and Fed governor Christopher Waller.

Waller warned on Wednesday that the inflation fight is not over and could result in higher interest rates to make sure intense price pressures are eradicated.

“Inflation remains quite elevated, and so more needs to be done,” Waller said in a speech at an agribusiness conference at Arkansas State University. He did not address how far he wanted the Fed to raise rates, but said he’s seen little evidence inflation is falling “quickly.”

See: Fed’s Waller says he’s prepared for ‘longer fight’ against inflation

Earlier Wednesday Williams, said in an interview with the Wall Street Journal, that the Fed needs to maintain “restrictive” interest rates for a few years to make sure high inflation is restored to low pre-pandemic levels. Yet despite a strong January jobs report, Williams said it was appropriate for the Fed to step down to a quarter point rate rise after a series of 50 basis points rate increases through most of 2022.

See: Williams says Fed needs to keep interest rates high ‘for a few years’ to kill off inflation

“US stocks declined after Williams did the pushback that everyone was expecting Fed Chair Powell to do,” Edward Moya, Senior Market Analyst at Oanda said. “Williams quickly sank risk appetite after he reminded Wall Street that if financial conditions loosen, higher rates may be needed. Financial conditions have been easing since October and this is why the Fed needed to pushback on how the markets have been pricing in rate cuts at the end of the year.”

Williams’ remarks came a day after Fed Chair Powell reiterated the disinflationary process is underway, but said more interest-rate hikes are still necessary. However, the Fed Chief did not push back against easing rate expectations despite Friday’s jaw-dropping U.S. jobs report, which made investors believe the Fed will not raise its policy rate more than they have priced in.

“That’s not too dissimilar from what I was expecting from him [Williams],” Giles Coghlan, chief market analyst at HYCM. “At the moment, there’s nothing kind of really particularly illuminating.” The consumer-price index data to be released next week could be the next major catalyst for market volatility, noted Coghlan.

Traders projected a 70.2% probability that the rate will peak at 5-5.25% by May, followed by almost 50 basis points of cuts by the end of 2023, according to the CME’s FedWatch tool.

Read: Why Biden’s 4% buyback tax could boost stock prices and dividends

Elsewhere, President Joe Biden called for a quadrupling of the tax on corporate stock buybacks, as well as pledging to cut the deficit by $2 trillion, according to his State of the Union address late Tuesday

The corporate earnings reporting season continued Wednesday. Walt Disney Co.
Wynn Resorts Ltd.
Robinhood Markets Inc.
among others, will report after the closing bell.

Nearly 70% the 297 S&P 500 companies that have reported fourth-quarter earnings so far have beaten analyst expectations, according to Refinitiv.

Companies in focus

Shares of Lumen Technologies Inc.

tumbled 21.3% after the telecommunications company beat expectations with its latest earnings and revenue figures but came up short with its outlook for free-cash flow.

Uber Technologies Inc.

shares rose 5% after the ride-hailing company lifted its outlook.

CVS Health Corp.

reported forecast beating earnings and revenue, and said it would acquire Oak Street Health Inc.

in a deal valued at $10.6 billion. CVS and Oak Street shares both climbed 4.5% Wednesday.

Chipotle Mexican Grill

missed expectations on both earnings and same-store sales, and shares were down 5% Wednesday.

Shares of Manchester United

surged 8.9% Wednesday after a report that a Qatari bid was imminent for the U.K. football club.

Capri Holdings Ltd.

stock tumbled 26.5% Wednesday, after the parent of Michael Kors, Jimmy Choo and Versace reported lower-than-expected earnings.

Shares of eBay

dropped 2.3% Wednesday after the e-commerce marketplace firm said Tuesday that it would cut around 4% of its workforce.

Shares of Dutch payment processor Adyen

fell 16.1% on Wednesday as the fast-growing company missed earnings expectations after a surge in hiring.

Barbara Kollmeyer contributed to this report

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