Will this market ever behave rationally again? Yesterday’s huge rally was a clear indication that investors were excited about the ½ point rate hike in the battle against inflation.  Today we find out that may have been an impulse buy and that when they took overnight to think about it, the thought that dominated was – will it really work?  And it was doubts about that which triggered today’s massive sell off with investors now convinced that June will bring another hike, this time .75%.  This was despite the fact that Powell was both specific and emphatic yesterday in stressing this would not happen. As today’s expert put it, “Investors aren’t looking at fundamentals. This is more of a sentiment issue.”  In other words, the sell off is rooted in fear rather than reason.  Which brings us back to the original question – will this market ever behave rationally again?  Perhaps as has happened many times before, cooler heads will prevail tomorrow, conclude everyone dramatically overreacted today, and there’ll be another big rally.  Volume was quite high at over 13.4 billion. 

Thu  May 5, 2022  4:33 PM

Wall Street tumbles as investors fret over bigger Fed rate hikes

By David French

DJ: 34,061.06  +932.27       NAS: 12,964.86  +401.10       S&P: 4,300.17  +124.69   5/4

DJ: 32,997.97  -1063.09      NAS: 12,317.69  -647.16        S&P: 4,146.87  -153.30    5/5

May 5 (Reuters) - U.S. stocks ended Thursday sharply lower amid a broad sell-off, as investor sentiment cratered in the face of concerns that the Federal Reserve's interest rate hike the previous day would not be enough to tame surging inflation.  All three main Wall Street benchmarks erased gains made during a relief rally on Wednesday, with the Nasdaq posting its biggest one-day percentage decline since June 2020 and its lowest finish since November 2020.  The Dow's decline was its worst daily performance since October 2020.  Technology megacaps slumped. Google-parent Alphabet Inc (GOOGL.O), Apple Inc (AAPL.O), Microsoft Corp (MSFT.O), Meta Platforms (FB.O), Tesla Inc (TSLA.O) and Amazon.com (AMZN.O) all fell between 4.3% and 8.3%.

However, it was not just high-growth stocks, which have struggled in 2022 as the prospect of rate rises had investors questioning their future earnings potential. The selloff hit all areas of the market, as traders headed for the exits.  "Investors aren't looking at fundamentals (such as earnings) right now, and this is more of a sentiment issue," said Megan Horneman, chief investment officer at Verdence Capital Advisors.

The U.S. central bank on Wednesday raised interest rates by half a percentage point as expected and Fed Chair Jerome Powell explicitly ruled out a hike of 75 basis points in a coming meeting.  Traders, however, on Thursday raised their bets on a 75 basis-point hike at the Fed's June meeting. IRPR  Worries about Fed policy moves, mixed earnings from some big growth companies, the conflict in Ukraine and pandemic-related lockdowns in China have hammered Wall Street recently, overshadowing a better-than-expected quarterly reporting season.

The Dow Jones Industrial Average (.DJI) fell 1,063.09 points, or 3.12%, to 32,997.97, the S&P 500 (.SPX) lost 153.3 points, or 3.56%, to 4,146.87 and the Nasdaq Composite (.IXIC) dropped 647.17 points, or 4.99%, to 12,317.69.  Only 19 of the S&P 500's constituents closed in positive territory, one of which was Twitter Inc (TWTR.N), which ended 2.6% higher. 

 

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All of the 11 major S&P sectors declined, with consumer discretionary (.SPLRCD) leading the way with a 5.8% drop. The index was dragged by Etsy Inc (ETSY.O) and eBay Inc (EBAY.O), down 16.8% and 11.7% respectively, after both forecast Q2 revenue would be below Wall Street's estimates.  The technology sector (.SPLRCT) was the next biggest loser, down 4.9%, with Intuit Inc (INTU.O) among those weighing the heaviest. It slipped 8.5%, to its lowest finish in a year, a day after agreeing to pay a $141 million settlement centered on deception claims around its TurboTax product. read more  "You're seeing those areas of the market which are purely discretionary, they are the ones getting hit today because everyone is anticipating that this is going to be a challenging period for consumers over the next several quarters," said Horneman of Verdence Capital Advisors.  The CBOE Volatility index (.VIX), also known as Wall Street's fear gauge, climbed to 31.20 points.

The focus now shifts to the U.S. Labor Department's closely watched monthly employment report on Friday for clues on labor market strength and its impact on monetary policy.

Volume on U.S. exchanges was 13.45 billion shares, compared with the 12.01 billion average for the full session over the last 20 trading days.

The S&P 500 posted two new 52-week highs and 43 new lows; the Nasdaq Composite recorded 20 new highs and 446 new lows.