Stocks fell on Thursday, building on Wednesday’s losses after the Federal Reserve delivered another three-quarter point interest rate hike, and signaled that a pivot or rate cut won’t come anytime soon.
The Dow Jones Industrial Average traded flat. The S&P 500 and Nasdaq Composite slid 0.5% and 0.9%, respectively.
Yields spiked as traders digested the latest rate decision, putting pressure on equities. The yield on the 2-year Treasury note hit its highest level since July 2007 while the benchmark 10-year Treasury yield popped 8 basis points to 4.141%.
“The post-Fed hangover continues to keep pressure on U.S. stocks as the impact from the first round of hikes is finally being felt,” said Oanda senior market analyst Ed Moya. “Stocks aren’t going to have a painful death here, but they will soften until markets price in a little more Fed hawkishness.”
Traders had anticipated the central bank’s 0.75 percentage point rate increase and initially read the Fed’s statement as dovish, suggesting smaller hikes in the future.
At first, that sent stocks higher on Wednesday, but those gains reversed when Fed Chair Jerome Powell said it was “premature” to discuss a rate hike pause and that the so-called “terminal rate,” or the level at which rates peak, would likely be higher than the Fed previously stated.
“We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected,” he said.
The Dow Jones Industrial Average ended Wednesday’s trading session 505 points lower, or 1.6%. The S&P 500 dropped 2.5%, and the Nasdaq Composite was off by 3.4%.
Markets will likely continue to seesaw until it is clear inflation has cooled off and that the Fed has stopped marching rates higher, but traders are split over where interest rates are headed. Any data that shows the U.S. economy isn’t slowing as the central bank tightens policy will likely weigh on stocks.
“In our view, the risk-reward for markets over the next three to six months is unfavorable,” wrote Mark Haefele, UBS’ chief investment officer, in a note to clients Wednesday.
Investor attention also turned to October nonfarm payrolls, set to be released Friday. A good jobs number and a low unemployment rate, while good for the economy, could signal more work ahead for the Fed. Another clue into inflation and the economy will come from next week’s October consumer price index report.
Corporate earnings season continued, with Qualcomm, Roku and Fortinet all falling sharply on disappointing quarterly results and forward guidance. Peloton‘s stock tumbled after reporting a wider-than-expected loss, while Moderna sank on a lowered Covid vaccine sales outlook.
For the week, all the major averages are on pace for losses, with the Dow down more than 2%. The S&P and Nasdaq have shed 3.9% and 5.8%, respectively, week to date.
Correction: A previous version misstated the declines in Wednesday’s session.