Wall Street slumps as investors absorb hawkish Fed rate message

All the indexes were up all day long, the Dow up almost 200 points until 3 pm and then everything went south in a big way and in a hurry with the Dow losing a whopping 750 points in the final hour to close down 522 points.  So was all the prognostication about the ¾ point rate hike already fully priced in completely wrong? Or was it that, though the markets were prepared for continued hawkishness, it wasn’t prepared for today’s remarks being so very hawkish. As today’s expert put it, “Powell delivered a sobering message that achieving a soft landing was always difficult.” Without having the actual text of his remarks, I can’t say whether this was his actual message or whether the gurus are just being overly pessimistic. 

 And there was also the forecast that there won’t be any rate cuts for at least another year, thereby dashing the somewhat unrealistic hopes that today’s ¾ point hike would be the last big one for a while. And did Powell make his comments right at 3 pm or much earlier, because if it was earlier, then the final hour rush to the exits had nothing to do with it.  Right now, it’s an irrational volatile market so who knows?  The Fed really didn’t do anything today that it hadn’t said it was going to do so, rationally, the indexes should have been even.  But they obviously weren’t.  I guess if these things really could be accurately predicted, everyone would be making money all the time. That’s why it’s called “risk.” Volume was above average at just over 11 billion. 

Wed  September 21, 2022  6:30 PM

Wall Street slumps as investors absorb hawkish Fed rate message

By David French

DJ: 30,706.23  -313.45       NAS: 11,425.05  -109.97       S&P: 3,855.93  -43.96      9/20

DJ: 30,183.78  -522.45       NAS: 11,220.19  -204.86       S&P: 3,789.93  -66.00      9/21

Sept 21 (Reuters) - Wall Street's main indexes see-sawed before slumping in the final 30 minutes of trading to end Wednesday lower, as investors digested another supersized Federal Reserve hike and its commitment to keep up increases into 2023 to fight inflation.  All three benchmarks finished more than 1.7% down, with the Dow (.DJI) posting its lowest close since June 17, with the Nasdaq (.IXIC) and S&P 500 (.SPX), respectively, at their lowest point since July 1, and June 30.  At the end of its two-day meeting, the Fed lifted its policy rate by 75 basis points for the third time to a 3.00-3.25% range. Most market participants had expected such an increase, with only a 21% chance of a 100 bps rate hike seen prior to the announcement.  However, policymakers also signaled more large increases to come in new projections showing its policy rate rising to 4.40% by the end of this year before topping out at 4.60% in 2023. This is up from projections in June of 3.4% and 3.8% respectively. read more

Rate cuts are not foreseen until 2024, the central bank added, dashing any outstanding investor hopes that the Fed foresaw getting inflation under control in the near term. The Fed's preferred measure of inflation is now seen slowly returning to its 2% target in 2025.  In his press conference, Fed Chair Jerome Powell said U.S. central bank officials are "strongly resolved" to bring down inflation from the highest levels in four decades and "will keep at it until the job is done," a process he repeated would not come without pain.  "Chairman Powell delivered a sobering message. He stated that no one knows if there will be a recession or how severe, and that achieving a soft landing was always difficult," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

Higher rates and the battle against inflation was also feeding through into the U.S. economy, with the Fed's projections showing year-end growth of just 0.2% this year, rising to 1.2% in 2023.  "Markets were already braced for some hawkishness, based on inflation reports and recent governor comments," said BMO's Ma.  "But it's always interesting to see how the market reacts to the messaging. Hawkishness was to be expected, but while some in the market take comfort from that, others take the position to sell."

The Dow Jones Industrial Average (.DJI) fell 522.45 points, or 1.7%, to 30,183.78, the S&P 500 (.SPX) lost 66 points, or 1.71%, to 3,789.93 and the Nasdaq Composite (.IXIC) dropped 204.86 points, or 1.79%, to 11,220.19.  All 11 S&P sectors finished lower, led by declines of more than 2.3% by Consumer Discretionary (.SPLRCD) and Communication Services (.SPLRCL).

Volume on U.S. exchanges was 11.03 billion shares, compared with the 10.79 billion average for the full session over the last 20 trading days.

The S&P 500 posted two new 52-week highs and 70 new lows; the Nasdaq Composite recorded 44 new highs and 446 new lows.