Wall Street closes lower after Fed holds rates steady, warns of higher for longer
Reuters
Published Sep 20, 2023 05:47AM ET
Updated Sep 20, 2023 08:37PM ET
By Stephen Culp
(Reuters) - U.S. stocks slumped on Wednesday after the U.S. Federal Reserve held key interest rates unchanged as widely expected, and revised economic projections higher with warnings that the battle against inflation was far from over.
All three major U.S. stock indexes retreated in the wake of announcement, with interest rate sensitive megacap stocks Microsoft Corp (NASDAQ:MSFT), Apple Inc (NASDAQ:AAPL) and Nvidia Corp (NASDAQ:NVDA) pulling the Nasdaq down most.
The Fed's announcement was accompanied by its Summary Economic Projections (SEP) and dot plot, which sees an additional 25 basis point rate hike this year, peaking in the 5.50%-5.75% range.
The SEP projections also called for 50 basis points of rate cuts next year.
"It’s your standard Fed day volatility," said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. "Yet it wasn’t really a curve-ball event, because markets took things in stride."
"This day has had a bull's eye on it all month and now we can move past it," Detrick added.
The updated projections see the Fed funds target rate edging down to 5.1% by the end of next year, and to 3.9% by the end of 2025.
Since the Fed began tightening in March, core inflation has cooled. But its slow descent toward the central bank's 2% target has been slow and uneven.
The SEP forecasts inflation to drop to 3.3% by year-end, and to approach the central bank's average annual 2% target.
At the subsequent press conference, Fed Chairman Jerome Powell tempered rosier economic projections with a warning that inflation has a long way to go before reaching that target.
"The Fed didn’t really rock the boat," Detrick said. "They acknowledged the strength in the economy, which also lowered the number of cuts that were expected next year, implying higher for longer is likely the path they will continue to take."
The Dow Jones Industrial Average fell 76.85 points, or 0.22%, to 34,440.88, the S&P 500 lost 41.75 points, or 0.94%, to 4,402.2 and the Nasdaq Composite dropped 209.06 points, or 1.53%, to 13,469.13.
Among the 11 major sectors of the S&P 500, interest rate sensitive communication services and technology suffered the largest percentage losses.
Marketing automation company Klaviyo advanced 9.2% in its debut on the New York Stock Exchange, the third recent initial public offering in recent days, following Arm Holdings (NASDAQ:ARM) and Maplebear Inc.
Get The News You Want
"It shows confidence is coming back to even have the large IPOS," Detrick said. "It's a sign that things are getting closer to normal which is something that is necessary at this stage of the business cycle."
Maplebear lost 10.7%, while fellow recent debut Arm Holdings was down 4.1%.
Pinterest (NYSE:PINS) added 3.1% after the image-sharing firm announced a share buyback of up to $1 billion.
Coty (NYSE:COTY) gained 4.4% after the CoverGirl parent hiked its annual core sales forecast.
Declining issues outnumbered advancing ones on the NYSE by a 1.46-to-1 ratio; on Nasdaq, a 1.90-to-1 ratio favored decliners.
The S&P 500 posted 14 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 39 new highs and 246 new lows.
Volume on U.S. exchanges was 9.73 billion shares, compared with the 10.07 billion average for the full session over the last 20 trading days.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.