Wall Street ends down, snaps weekly winning streak on Fed worries

The market is resigned to another ¼ point hike in July but has remained adamantly in denial about the Fed warning about a second hike before year-end.  Today that denial appears to have been vanquished with two Fed presidents warning again that there would be two more hikes. The indexes were down from the outset indicating that sentiment had already changed at open but then everything went very much more south just after 2 pm which was probably when the Fed presidents made their remarks, generating the biggest losses since the March banking crisis. The further evidence of the change in sentiment was reflected in the rate-sensitive Nasdaq which suffered the biggest percentage loss of all the indexes.  

The silver lining is that we were due for a pullback, as stated by today’s expert, “It has been an overbought market and giving a little bit back. There’s nothing surprising about markets taking a pause.” But many still feel that inflation data later this summer will be much more positive than the Fed expects. “I’ll be surprised if the inflation data merit that second hike by the time we get to the September Fed meeting.”  The other good news is that the VIX remains near a 3-1/2 year low, meaning that investors aren’t particularly worried.  Volume was huge but that was clouded by a lot of swapping in and out and back in again for the reconstitution of the Russell, artificially way overinflating the number. 

Wall Street ends down, snaps weekly winning streak on Fed worries

By Stephen Culp

Fri June 23, 2023 4:25 PM

DJ: 33,946.71  -4.81          NAS: 13,630.61  +128.41        S&P: 4,381.89  +16.20     6/22

DJ: 33,727.43  -219.28      NAS: 13,492.52  -138.09         S&P: 4,348.33  -33.56      6/23

NEW YORK, June 23 (Reuters) - U.S. stocks closed lower on Friday, capping a week dominated by Federal Reserve Chairman Jerome Powell's testimony in which he signaled more interest rate hikes ahead but vowed the central bank would proceed with caution.  All three major U.S. stock indexes lost ground in a broad sell-off. Interest-sensitive megacap stocks weighed heaviest on the tech-laden Nasdaq composite index (.IXIC), led by Microsoft Corp (MSFT.O), Tesla Inc (TSLA.O) and Nvidia Corp (NVDA.O).  With few market-moving catalysts this week aside from Powell's congressional testimony, all three indexes notched weekly losses, ending a weeks-long rally.  The Nasdaq snapped its eight-week winning streak, its longest since March 2019, while the S&P 500 (.SPX) broke its five-week rally, its longest since November 2021.  The S&P 500 and the Nasdaq logged their biggest Friday-to-Friday percentage drops since early March, when the regional banking liquidity crisis hit.

"It has been an overbought market, and giving a little bit back," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. "(The rally) has been momentum-driven, with fairly broad participation, and there's nothing surprising about markets taking a pause, and the pause has been fairly orderly."  San Francisco Fed Bank President Mary Daly said on Friday in an interview with Reuters that two more rate hikes this year is a "very reasonable" projection, while echoing Powell's call for more caution in policy decisions.  Atlanta Fed President Tom Barkin said late Thursday he was unconvinced inflation is on a steady path down to the 2% target, but added he would not predict the outcome of the central bank's July policy meeting.  Financial markets have baked in a 74.4% likelihood that the Fed will resume hiking the Fed funds target rate by another 25 basis points at the July meeting, according to CME's FedWatch tool.  "You can probably count on a rate hike next month, but it's that second hike that the markets are skeptical of," Mayfield added. "I'll be surprised if the inflation data and other economic data merit that second hike by the time we get to the September (Fed) meeting."

The Dow Jones Industrial Average (.DJI) fell 219.28 points, or 0.65%, to 33,727.43, the S&P 500 (.SPX) lost 33.56 points, or 0.77%, at 4,348.33 and the Nasdaq Composite (.IXIC) dropped 138.09 points, or 1.01%, to 13,492.52.  All 11 of the major S&P 500 sectors lost ground, with utilities (.SPLRCU) suffering the largest percentage loss.  Chips weighed on tech shares, with the Philadelphia SE Semiconductor index (.SOX) sliding 1.8%.

Used car marketplace Carmax Inc (KMX.N) posted better-than-expected quarterly profits, sending its shares surging 10.1%.  Starbucks Corp (SBUX.O) fell 2.5% after its unions said around 3,500 U.S. workers will strike next week to protest the chain's ban on Pride month decorations at its cafes.

The CBOE Market Volatility index (.VIX), a gauge of investor anxiety settled at up 0.53 point at 13.44, bouncing off a 3-1/2 year low.

Declining issues outnumbered advancers on the NYSE by a 2.39-to-1 ratio; on Nasdaq, a 2.03-to-1 ratio favored decliners.  The S&P 500 posted 18 new 52-week highs and four new lows; the Nasdaq Composite recorded 35 new highs and 138 new lows.

The Russell 2000 finalized the reconstitution of its stock components, which fueled a surge in trading volume.  Volume on U.S. exchanges was 15.93 billion shares, compared with the 11.68 billion average for the full session over the last 20 trading days.