Stocks Roiled By Crazy Gyrations After Hawkish Fed: Markets Wrap
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(Bloomberg) -- Stocks saw wild swings, with traders overwhelmed by the many headlines that followed the Federal Reserve decision and Jerome Powell’s remarks and ended up signaling at least one thing: policy will remain aggressively tight -- making the odds of a soft landing look increasingly elusive.
The S&P 500 ended near session lows -- pushing its slide from a January record to more than 20%. The gauge whipsawed in the aftermath of the Fed announcement, climbing as much as 1.3% at one point. The two-year rate topped 4%, piercing that mark for the first time since 2007. The dollar rallied.
Fed Chair Jerome Powell said officials were “strongly committed” to curbing inflation after they raised interest rates by 75 basis points for a third straight time and signaled more hikes to come. Powell said his main message was that officials were “strongly resolved” to bring inflation down to the Fed’s 2% goal and added that “we will keep at it until the job is done.” The phrase invoked the title of former Fed chief Paul Volcker’s memoir “Keeping at It.”
“Jerome Powell almost channeled his inner Paul Volcker today, talking about the forceful and rapid steps the Fed has taken, and is likely to continue taking, as it attempts to stamp out painful inflation pressures and ward off an even worse scenario later down the line,” said Seema Shah, chief global strategist at Principal Global Investors. “With the new rate projections, the Fed is engineering a hard landing – a soft landing is almost out of the question.”
Officials forecast that rates would reach 4.4% by the end of this year and 4.6% in 2023, a more hawkish shift in their so-called dot plot than expected. That implies a fourth-straight 75-basis-point hike could be on the table for the next gathering in November -- about a week before the US midterm elections.
- “It seems like the market is wrestling with the possibility of higher rates at year-end on the one hand, and possibly getting the bulk of the rate hike cycle done sooner on the other hand. I think it’s fair to say this was a slightly hawkish surprise, but markets were expecting them to err on the hawkish side,” said Sameer Samana, Wells Fargo Investment Institute senior global market strategist.
- “Today’s Fed action, combined with ongoing rollercoaster-like market volatility, underscore the unease of investors amid the magnified economic and market uncertainties driven by high inflation, corporate earnings warnings, geopolitical concerns and other factors weighing heavily on both Wall Street and Main Street,” said Greg Bassuk, chief executive officer at AXS Investments.
- “They have a brief window to act aggressively, and they seem eager to use it,” said Jan Szilagyi, co-founder of Toggle AI, an investment research firm.
- “The first set of Fed releases from the September meeting are unambiguously hawkish,” said Krishna Guha at Evercore. “The macro projections signal increased risk of a harder landing.”
- “The Fed was late to recognize inflation, late to start raising interest rates, and late to start unwinding bond purchases,” said Greg McBride, chief financial analyst at Bankrate. “They’ve been playing catch-up ever since. And they’re not done yet.”
- “The market seems to have hoped beyond hope that they would hear some reference to an end to rate hikes on the horizon, but that’s certainly not what we got today,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. “It’s important to keep in mind that Fed policy operates on a lag, so it may be some time before we see inflation come down close to the Fed’s target.”
Read: Fed Delivers Third-Straight Big Hike, Sees More Increases Ahead
Key events this week:
- Bank of Japan monetary policy decision, Thursday
- The Bank of England interest rate decision, Thursday
- US Conference Board leading index, initial jobless claims, Thursday
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Here are some of the main moves in markets:
- The S&P 500 fell 1.7% as of 4 p.m. New York time
- The Nasdaq 100 fell 1.8%
- The Dow Jones Industrial Average fell 1.7%
- The MSCI World index fell 1.5%
- The Bloomberg Dollar Spot Index rose 0.7%
- The euro fell 1.2% to $0.9847
- The British pound fell 0.9% to $1.1281
- The Japanese yen was little changed at 143.88 per dollar
- The yield on 10-year Treasuries declined six basis points to 3.51%
- Germany’s 10-year yield declined three basis points to 1.89%
- Britain’s 10-year yield advanced two basis points to 3.31%
- West Texas Intermediate crude fell 0.7% to $83.34 a barrel
- Gold futures rose 0.6% to $1,681.40 an ounce
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