Wall Street stocks slump as investors absorb 75 bps rate hike, hawkish Fed message

Wall Street stocks slump as investors absorb 75 bps rate hike, hawkish Fed message

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 posting its lowest close since June 17, with the Nasdaq and S&P 500, 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.

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“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.

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The Dow Jones Industrial Average fell 522.45 points, or 1.7%, to 30,183.78, the S&P 500 lost 66 points, or 1.71%, to 3,789.93 and the Nasdaq Composite 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 and Communication Services. 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.