- Dow, S&P and Nasdaq close lower on hawkish Fed
- Fed signals one more rate rise in 2023, fewer cuts in 2024
- Splunk surges as Cisco launches takeover
4:21pm: Indexes fall for the third-straight day
The Dow closed Thursday down 370 points, 1.1%, at 34,070, the Nasdaq Composite slid 254 points, 1.8%, to 13,224 and the S&P 500 declined 77 points, 1.6%, to 4,330. The small-cap Russell 2000 index lost 28 points, 0.6%, to 1,782.
The indexes lost ground for the third consecutive session. Among the laggards was Amazon, shares of which fell more than 4%.
Meanwhile, the 10-year Treasury yield rose to 4.48%, its highest in more than 15 years.
“That’s kind of a warning sign for markets right now,” said Adam Turnquist, chief technical strategist at LPL Financial, of recent yield moves. He added that yields are “certainly weighing on risk appetite at this point.”
Elsewhere, House Republican leaders sent the chamber into recess on Thursday without a budget deal, increasing fears that the government will shutdown at the end of the month.
12:00pm: Hawkish Fed spells doom for risk appetite
US stocks remained stuck in negative territory after strong jobs figures supported the narrative that interest rates will stay higher for an extended period.
At midday, the Dow Jones Industrial Average was down 195.55 points, 0.6%, at 34,245.33, the S&P 500 was down 49.03 points, 1.1% at 4,353.17 and the Nasdaq Composite was down 180.75 points, 1.3%, at 13,288.38.
“’Higher for longer’ is the theme from all central banks at the moment, but it is the Fed that has really spelled doom for risk appetite, said Chris Beauchamp at online trading platform IG.
"No one really expected the pause to be accompanied by such a dramatic shift in the dot plots, but perhaps this time the market will really believe that the Fed is determined to leave rates at their current elevated levels until inflation is well and truly slain."
9:40am: Stocks fall as Fed fall-out continues
Stocks opened sharply lower on Thursday on worries interest rates would stay higher, for longer, following the Federal Reserve’s ‘hawkish hold’ on Wednesday.
Shortly after the opening bell, the Dow Jones Industrial Average was down 217.32 points, 0.6%, at 34,223.56, the S&P 500 was down 34.34 points, 0.8%, at 4,367.86 while the Nasdaq Composite was down 131.58 points, 1.0%, at 13,337.55.
Ian Shepherdson chief economist at Pantheon Macroeconomics said: "This is a hawkish hold, signalling higher-for-longer, but the Fed’s intentions today are not a set of promises."
But he thinks that core inflation will fall faster than they expect, and the labor market will loosen more than they expect.
As a result, he thinks the Fed will be easing by 150bp next year, starting in the spring, though he thought the market reaction was understandable
There was further evidence of the resilience of the US economy with US initial jobless claims coming in lower than expected.
According to the US Department of Labor, initial claims for unemployment support – a proxy for lay-offs - fell 20,000 to 201,000 in the week ended September 16, from 221,000 a week prior.
The latest figure fell short of the FXStreet cited consensus, which predicted claims would rise to 225,000.
Elsewhere, Splunk shares surged after the analytics and security software company agreed to be acquired by Cisco Systems (NASDAQ:CSCO) in a $28 billion deal.
Shares of Splunk jumped than 20% while shares of networking-equipment giant Cisco fell 3.4%.
Cisco is paying $157 a share in cash for Splunk.
Broadcom fell 4.8% following a report that Alphabet's Google unit is looking to drop the company as a supplier of artificial-intelligence chips as early as 2027.
Business news website The Information, citing a person with direct knowledge of the situation, reported that in this scenario Google would fully design the chips, known as tensor processing units, in-house in a move that could help it save billions of dollars in annual costs.
6:50am: Stocks to fall further after 'hawkish' Fed
US stocks are expected to fall further on Thursday after the Federal Reserve signalled one more rate rise this year and fewer cuts next, as it left interest rates unchanged at a 22-year high.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.4% lower, while those for the S&P 500 fell 0.6%, and contracts for the Nasdaq 100 futures were down 0.8%.
The Federal Open Market Committee decided against an interest rate increase following its latest two-day meeting and voted unanimously to hold the federal funds rate between 5.25-5.5%.
Projections released in the Fed’s dot-plot showed the likelihood of one more increase this year, then two reductions in 2024, two fewer than were indicated during the last update in June.
Goldman Sachs (NYSE:GS) said the FOMC’s interest rate projections were "somewhat more hawkish than expected today," with a solid 12-7 majority showing another hike in 2023 and the median pencilling in 50bp of rate cuts in 2024, down from 100bp of cuts in June.
"We did not take this as a strong signal about a hike in November, in part because these projections came alongside an inflation forecast that still looks too high," the investment bank said.
Goldman continues to expect that better inflation news, progress on labor market rebalancing, and a likely Q4 growth pothole will convince the FOMC not to hike again this year.
But the bank has pushed back its hopes for the first interest rate cut in 2024.
Bank of America also called the revised dot plot as hawkish.
“Today's data leaves our Fed call unchanged: we expect one final hike in November, but it is a close call,” it said.
Away from reaction to the rate call, and economists expect sales of existing US homes to have edged up to 4.1 million in August from 4.07 million in July.
Meanwhile, weekly jobless claims, considered a proxy for lay-offs, are predicted to have risen to 225,000 last week, from 220,000 the prior week.