4.10pm: US markets have a day to forget
US equities were savaged once more as weak retail sales figures increased worries that the Federal Reserve’s pursuit of lower inflation through higher interest rates would result in recession.
At the close the Dow Jones Industrial Average was 764 points lower, or 2.25%, at 33,202, its worst day for three months, while the S&P 500 slumped 100 points, or 2.5%, to 3,896 and the Nasdaq Composite tumbled 360 points, or 3.23%, to 10,811.
Big tech stocks fell heavily with Amazon.com, Meta Platform Inc, Microsoft Corp. and Apple Inc (NASDAQ:AAPL) all sharply lower while bank shares also declined as fears of a recession increased.
The disappointing retail sales report suggested inflation is taking a toll on consumers with a 0.6% fall in November, well ahead of Street expectations for a 0.3% decline.
With the Fed signalling further rate rises to come investors took fright fearing the economic slowdown would be worse than feared as the rise in the cost of borrowing hits home.
Another share on the move was Netflix, which fell more than 8%, following a Digiday report that said the streaming firm is offering to return money to advertisers after missing viewership targets.
12.05pm: Dow drops nearly 800 points
US stocks fell sharply in noon trading following some hawkish Federal Reserve speak along with weaker-than-expected November retail sales.
At midday, the Dow lost 796 points to 33,170, while the S&P 500 eased 102 points at 3,893 and the tech-heavy Nasdaq slipped 329 points to 10,842.
“People assume earnings are going to come down, but it’s the magnitude of that decline and how fast it’s going to happen — we think that is where the surprise is,” Morgan Stanley (NYSE:MS) strategist Mike Wilson said.
“That negative operating leverage that we see from that falling inflation… is what is going to hurt margins, and that’s irrespective of whether there is an economic recession,” Wilson added.
Notable movers included shares of Netflix Inc (NASDAQ:NFLX), which slipped more than 7% after Digiday noted that the streaming giant is falling short on viewership guarantees it made to advertisers for its new ad-supported tier.
9.35am: No Santa rally in sight
US stocks opened in the red as the Fed’s 50 basis point interest rate hike yesterday, along with the European Central Bank and Bank of England following with their own 50 basis point rate hikes this morning, weighed on investor sentiment.
Just after the market opened, the Dow Jones Industrial Average had shed 322 points or 1%, the S&P 500 had dipped 46 points or 1.1%, and the Nasdaq Composite had lost 165 points or 1.5% at 11,006 points.
Swissquote Bank senior analyst Ipek Ozkardeskaya said it was known that Fed chair Powell would not tell investors: “‘Ho ho ho, inflation is now 7%, we will stop tightening policy and hiking the rates. So, you can buy stocks, bonds, cryptocurrencies, meme stocks, whatever you find. Merry Xmas!”
“No, he was not going to do that, and he did not,” Ozkardeskaya said.
Ozkardeskaya said, in summary, that the FOMC message was clear: the Fed is not ready to stop hiking rates, even though they will be hiking by smaller chunks.
“Jerome Powell said yesterday that the last two CPI reports were ‘a welcome reduction in the monthly pace of inflation’, however, ‘it will take substantially more evidence to have confidence’ that the job is done,” she said.
“Crystal clear. No pause, no cut, no softening in sight.”
6.30am: Higher-for-longer interest rates spook investors
Wall Street is expected to open lower after the Federal Reserve maintained a hawkish stance after its last policy meeting of 2022 even as it curtailed its latest interest rate increase to 50 basis points after hiking by 75 basis points at its previous four meetings.
Futures for the Dow Jones Industrial Average fell 0.7% in Thursday pre-market trading, while those for the broader S&P 500 index declined 1.0% and contracts for the Nasdaq-100 shed 1.3%.
As well as raising rates to the highest level since 2007, Fed officials also indicated that they expect to maintain higher rates next year, with the first reduction only expected in 2024. The Fed’s “dot plot”, which tracks the expectations of individual members, suggested the terminal rate could be higher than expected and above 5%.
“Yesterday’s rate hike news from the Fed may have been as expected but given the underlying hawkish tone, equity traders were left rattled by the event,” commented James Hughes, chief market analyst at Scope Markets. “US indices lost ground in the wake of the announcement and as European trading gets underway, futures suggest a similar sized down-leg will be seen at Thursday’s opening bell.”
After trading higher for most of yesterday’s session, markets reversed course following the Fed announcement, with the Dow Jones ending trade 0.4% lower at 33,966, while the S&P 500 fell 0.6% to 3,995 and the Nasdaq Composite dipped 0.8% to 11,171.
“In light of the Federal Reserve’s hard-line stance it would perhaps be of little surprise if stronger than expected growth was seen in the November retail sales figures which are due for publication later, something which may be sufficient to claw back a degree of those losses picked up by equities,” Hughes added.