S&P 500, NASDAQ Composite Tumble as Fed Raises Rates, Signals More Hikes Next Year

The S&P 500 and NASDAQ Composite are trading lower late Wednesday after giving up earlier gains as investors digested the Federal Reserve’s latest interest rate hike decision in its efforts to tame inflation.

At 19:15 GMT, the blue chip Dow Jones Industrial Average is trading 34025.20, down 83.44 or -0.24%. The benchmark S&P 500 Index is at 4004.57, down 15.08 or -0.38% and the tech-weighted NASDAQ Composite is trading 11193.40, down 63.42 or -0.56%.

Rate Hike Widely Expected

Federal Reserve policymakers delivered a widely-anticipated 50 basis point rate hike that had been priced into the market for weeks. This brought an end to the streak of four consecutive rate hikes of 75 basis points.

The Fed’s Bearish Surprise

Stocks were trading higher ahead of the rate announcement and actually traded steady when it was announced, but prices turned south in a hurry when it was announced that Fed officials also forecast raising rates to 5.1% before ending this hiking cycle. This was bearish because it was a little more than investors had anticipated.

Ahead of the report, strategists at Morgan Stanley are predicting the peak Fed Funds rate at 4.625%. Others are looking for the target Fed funds rate to reach 4.85% and pricing in more cuts by the end of 2023.

Compounding the bearishness, the Fed also forecast that it would keep rates higher through 2023, with no reductions until 2024.

S&P Sectors Reverse to the Downside

Shortly before the release of the Fed’s announcements, all the 11 major S&P 500 sectors were in the green. Gains were led by defensive sectors, often preferred in time of economic uncertainty, such as healthcare, utilities and industrials.

All of the 11 major S&P 500 sectors are now trading lower at 19:37 GMT. The biggest loser is the Communication Services Sector, down 1.86%, followed by technology, off by 1.77% and materials, down 1.67%.

NASDAQ Megacap Growth Stocks Weaken

Megacap growth stocks such as Microsoft Corp, Apple Inc, Mastercard Inc and Qualcomm Inc, were all enjoying quiet gains of between 1.1% and 1.7% ahead of the Fed.

At 19:39 GMT, Microsoft is down 0.64%. Apple is off 2.27%, Mastercard is down 0.30% and Qualcomm is losing 2.15%.

Into the Close

Federal Reserve Chairman Jerome Powell is holding a press conference that should set the tone into the close. So far the tone is bearish. Powell can either reverse this tone or increase its intensity. Since he has been hawkish in previous press conferences, I expect the tone to be quite negative, setting up the indexes for further downside pressure.