4:05pm: US equities close lower as rates rise
US stocks closed lower for a second straight day on rising interest rates as the Federal Reserve gave more guidance on how fast it will tighten monetary policy to fight inflation.
As a result, the central bank’s comments spooked investors and traders who are fretting that boosting rates may slow the economy.
The Fed’s release of its meeting minutes indicated on Wednesday afternoon that officials “generally agreed” it should shrink its balance sheet by $95 billion per month. The minutes also showed the central bank was considering larger rate hikes than its usual 25-basis-point, or quarter-point, increments.
On the day, the Dow fell 147 points, or 0.39%, to 34,818 and the S&P 500 declined 0.99% to 4,481.
And the tech-heavy Nasdaq dropped sharply -- 2.22% to 13,888.
12.05 pm: Equities tumble for the second straight day
US stocks fell sharply in noon trading as the 10-year Treasury yield moved above 2.65%, hitting a three-year high on expectations the Federal Reserve will be more aggressive in hiking interest rates.
At midday, the Dow fell 211 points to 34,431, while the S&P 500 eased 51 points at 4,474 and the tech-heavy Nasdaq slid 328 points to 13,876.
“Overall, the US equities market maybe has 5% upside from these hikes between now and the end of the year,” Goldman Sachs (NYSE:GS)’ David Kostin said.
“Should we be going into a recession it will be meaningful downside, but that’s not the base case right now,” Kostin added.
Utilities, health care and consumer staples stocks attracted buyers as investors shunned high-growth tech names.
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9.44am: US stocks start in red
US stocks started in the red midweek as traders brace for interest rate rises from the Federal Reserve to combat runaway inflation.
Stocks fell on Tuesday and on Wednesday at the New York open, the Dow Jones Industrial Average dropped around 268 points at 34,380. The S&P 500 shed around 45 points to stand at 4,479.
The tech heavy Nasdaq Composite Index shed around 212 points to stand at 13,991.
On Tuesday, Fed Governor Lael Brainard showed her support for higher interest rates and a central bank tightening stance as she said a "rapid" reduction of the central bank’s balance sheet could begin as soon as May, 2022.
Today, it is expected that shares in Tesla, Microsoft, and Amazon will decline as investors shun the big, growth tech names and move into stocks with stable profits.
6.30am: US stocks seen opening down
US stocks are expected to extend Tuesday’s losses triggered by Federal Reserve Governor Lael Brainard’s hawkish comments, with the overall market likely remaining muted as investors sift for further clues on the policymaker’s approach in the minutes of its March meeting expected later today.
Bond yields rose to their year highs, pointing to the possibility that the world’s largest economy may be headed for a recession after Brainard said she expects a combination of interest rate increases and a rapid reduction of the Fed’s near US$9 trillion balance sheet to bring US monetary policy to a “more neutral position” later this year.
Futures for the Dow Jones Industrial Average fell 0.55% in Wednesday pre-market trading, while those for the S&P 500 were 0.67% lower, and contracts for the tech-heavy Nasdaq-100 slipped 1%.
The Fed’s release later today of the minutes of its March meeting is expected to keep traders sidelined as they digest fresh details on the central bank's plans to shrink its balance sheet to tame inflation. But activity in Fed funds futures is already indicating a more than 75% chance of a 50 basis-point increase at its May meeting.
“In this tense environment, investors will be closely watching the Fed minutes today. There would be no surprise if the Fed hinted a 50 basis-points hike in the next meeting. Yet, what will really make the difference is the speed at which the Fed will shrink the balance sheet. And there is a big potential for a hawkish pricing on this front,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“The market risks remain tilted to the downside given the hawkish shift in Fed officials’ latest comments. Scary inflation figures, combined with abnormally strong jobs reports and higher wages support the idea that if there is a good time for the Fed to hit the brakes on its ultra-lose policy, it is now.”
Brent crude futures rose 1.2% to $107.96 a barrel in the commodities market.
“The black gold is trying its best to stay in positive territory … the chances of sanctioning Russian oil are minimal, and traders do not see any supply issues, keeping oil prices in check. Both crude and Brent oil prices continue to stay above the critical level of $100, which indicates that bulls are still very much in control of the price,” said Naeem Aslam, chief market analyst at Avatrade.
In premarket trading, Twitter fell 2.2% after rising this week on Tesla chief executive Elon Musk’s acquisition of a large stake in the social media company.
Contact the author at stephen.gunnion@proactiveinvestors.com