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- Stocks ended lower Wednesday after the Fed hiked rates by 50-basis-points.
- The move was widely expected, though the Fed may have struck a more hawkish tone than what traders wanted to hear.
- The Fed funds rate is now at its highest level since 2007, with officials expecting to hike rates past 5% through next year.
US stocks ended lower on Wednesday after the Federal Reserve hiked rates by another 50-basis-points and signaled it would stay hawkish on inflation even as prices cooled more than expected in November.
All three indexes ended the day lower, giving up gains from earlier in the session before the 2 p.m. announcement and Fed Chair Jerome Powell’s press conference.
In a statement following the Federal Open Market Committee meeting, Powell noted that inflation still remains “well-above” the Fed’s long-run target of 2%, and “substantially more evidence” was needed before central bankers to ascertain if inflation was on a sustainable downtrend. Prices cooled to 7.1% in November, down from a 41-year-high of 9.1% recorded in June.
Today’s move brought the Fed funds rate to 4.25%-4.5%, the highest policy rate since 2007. Officials expect to raise rates to 5.25%-5.5% through 2023, according to Federal Reserve projections, dashing hopes for a swift pivot by the central bank away from the hawkish path it has been on all year.
Here’s where US indexes stood shortly after the 9:30 a.m. opening bell on Wednesday:
- S&P 500: 3,995.21, down 0.61%
- Dow Jones Industrial Average: 33,965.69, down 0.42% (142.95 points)
- Nasdaq Composite: 11,170.89, down 0.76%
Today’s rate hikes have also raised concerns the central bank will overtighten the economy into a recession, which could spur more volatility in stocks.
“The economy isn’t in recession yet, but as long as the Fed is aggressively raising interest rates it’s going to be hard for it to retain its resilience and the chances of a soft landing will go down proportionately with the Fed’s willingness to let up on rate hikes,” Independent Advisor Alliance chief investment officer Chris Zaccarelli said in a statement.
“The effects of the tightening in 2022 will continue to be felt in 2023 through a weaker labour market, recession in Europe, and potentially a recession in the US. The earnings hit from a recession is not priced into equity markets, nor is the likely structural shift higher in inflation beyond 2023 for bond markets. The Fed has made significant progress fighting near-term inflation, but the war is far from won,” Lazard chief market strategist Ronald Temple warned.
Here’s what else is going on today:
- Stocks will jump 18% next year as 2022’s crises become opportunities, Fundstrat’s Tom Lee said.
- The stock market flashed a “golden cross,” a widely-watched indicator that suggests more upside ahead.
- Mortgage demand rose after nearly a month of declines as buyers respond to the pullback in Fed rate hikes.
- Elon Musk’s Twitter sideshow is damaging Tesla’s brand, and Musk needs to “pull it together,” Loup’s Gene Munster said.
- China has reportedly asked big banks to help stabilize the country’s bond market as retail investors pull out in droves.
- The White House denied intel being leaked after a big burst of unusual trading activity right before the release of yesterday’s key inflation report.
In commodities, bonds, and crypto:
- Oil prices climbed, with West Texas Intermediate up 2.89% to $77.57 a barrel. Brent crude, the international benchmark, inched higher 0.33% to $82.97 a barrel.
- Gold edged lower 0.09% to $1,809.75 per ounce.
- The 10-year Treasury yield ticked higher to 3.503%.
- Bitcoin was nearly flat, trading at $17,779.