As market players evaluated the broader ramifications of the Federal Reserve’s historic interest rate decision, the stock markets suffered massive losses on Thursday.
As of midday, the Nasdaq was down more than 4 percent, while the S&P 500 and Dow Jones Industrial Average (DJIA) were down 3 percent and 2.5 percent, respectively. The benchmark 10-year Treasury yield briefly surpassed 3% before retreating as markets declined.
Before and after the Federal Open Market Committee (FOMC) decision on Wednesday, stocks had spectacular rises, including the largest Fed rate increase in 20 years and the first instance of consecutive Fed rate hikes since 2006.
Following a 25-bps increase in March, the Fed increased the fed funds rate by 50 basis points (bps), to a range of 0.75 percent to 1 percent. Fed Chair Jerome Powell stated at the post-decision press conference on Wednesday that 50 bps rate hikes are possible at the next two sessions.
Markets Nervous about Bigger Fed Rate Hikes
Powell had signalled the Fed’s determination to implement larger rate increases. Two weeks previously, he predicted a 50 bps hike at an International Monetary Fund (IMF) panel discussion.
Powell stated during the IMF event, “I believe it is reasonable to move a little more swiftly.” “There is something to be said about front-loading whatever accommodation deemed suitable,” I believe.
Powell struck again during the post-decisions press conference, where he appeared to reaffirm that the FOMC may raise rates by 50 basis points at its June and July meetings. This would place the fed funds rate at 2% by the end of July.
Prior to March, the markets did not anticipate this level until the end of 2022.
Jeffrey Roach, chief economist at LPL Financial, stated, “We know that the current Fed prefers not to surprise the market.” “Like any good speaker, the Fed will tell you what they intend to do, accomplish it, and then tell you what they have just done.”
The triple-50 increases do not completely surprise the markets. Goldman Sachs stated this morning that they anticipate another 50-point increase in June.
“We view this as a strong indicator. Already anticipating a second 50-basis-point increase in June, the bank now anticipates a third 50-basis-point increase at the Fed’s July meeting.
However, today’s response should suggest that the share market decline is far from done.
Tech Shares Drive the Recession
In the market decline over the past four months, technology stocks have been the largest losers, and this trend does not appear likely to reverse any time soon.
On Thursday, companies with rapid growth were hit particularly hard. Chipmakers Advanced Micro Devices (AMD), Nvidia (NVDA), and NXP Semiconductors (NXPI) all dropped by more than 4 percent. Large-capacity Technology Shares As market players evaluated the broader ramifications of the Federal Reserve’s historic interest rate decision, the stock markets suffered massive losses on Thursday. o retreated, with Meta Platforms (FB) down over 6 percent and Netflix (NFL) sliding nearly 7 percent.
By decreasing the value that investors place on technology firms’ future earnings, higher interest rates might lower the attractiveness of technology stocks. In general, higher rates increase the desirability of fixed-income products relative to riskier assets such as stocks.
Following Elon Musk’s announcement that he had acquired more than $7 billion in new funding to bolster the equity portion of his offer to acquire Twitter, Twitter shares climbed about 4 percent (TWTR). Musk and Twitter agreed last month to take Twitter private for $54.20 per share.
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