U.S. stocks finished mostly lower Wednesday and bond yields jumped, after the Federal Reserve signaled rate hikes are on the way and other monetary policies eventually will tighten.
Investors also were sifting through quarterly results, including a fresh batch of earnings from Boeing, AT&T, and Tesla.
How did stock index perform?
- The Dow Jones Industrial Average DJIA, -0.38% fell 129.64 points, or 0.4%, to finish at 34,168.09, after earlier pushing as high as 34,815.67.
- The S&P 500 index SPX shed 6.52 points, or 0.2%, ending at 4,349.93.
- The Nasdaq Composite Index COMP, +0.02% added 2.82 points, or less than 0.1%, to close at 13,542.12. Major indexes traded at or near session highs immediately after the Fed announcement.
What drove the markets?
Stocks lost their grip on earlier gains Wednesday in another volatile session, after the Federal Reserve at its first meeting of 2022 kept benchmark interest rates steady, but signaled that monetary policy will soon tighten.
Fed Chairman Jerome Powell said the Fed “was of a mind” to raise the federal-funds rate at its mid-March meeting, but said policy makers also reached no decisions yet on the path of monetary support.
Instead, Fed officials will remain “nimble” and leave it to coming meetings to decide how high to raise rate or “significantly reduce” the central bank’s near $9 trillion balance sheet. The reduction is slated to start once rate increases have begun.
Powell told reporters there was significant room to raise interest rates without hurting the labor market and didn’t rule out the prospect of rate increases larger than 25 basis points given the scope of the inflation challenge.
“All of this seemed to sink the spirit of the market a bit,” said Anu Gaggar, global investment strategist for Commonwealth Financial Network, in emailed comments.
“The Fed took a hammer out of its toolbox, and not a sledgehammer,” said Rich Steinberg, chief market strategist at The Colony Group, in a phone call. “While we might have some swoons and rallies in markets, I think Powell is playing by the playbook, which is incrementalization.”
Markets remain eager for a clearer road map to tighter monetary policy, including specifics on how the Fed expects to shrink its balance sheet.
“Big picture, we are still positive on the equity market,” said Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management, in a phone call. “Usually, when the economy is this strong, the market tends to have good results.”
Stocks have been whipsawed by recent volatility, driven by disappointment over corporate earnings so far this quarter, tension between Russia and NATO over concerns that Moscow may be planning an imminent invasion of Ukraine, and, most of all, apprehension over the Fed’s path to fighting inflation.
“This meeting matters, because it is the first of the year, and it sets the tone,” said Chris Dhanraj, managing principal of investments at CLA Wealth Advisory, in a phone interview. “The macro view of the world is that rates are rising, and that the Fed and President Biden are going after higher inflation prints.”
Fears over tighter Fed policy have been reflected in the Nasdaq, down 13.5% this month. It fell into correction territory last week, down more than 10% from its record high in November. Dominated by interest-rate-sensitive growth stocks, the index has suffered blows from rising Treasury yields, which pushed higher after the Fed decision.
The 10-year Treasury yield TMUBMUSD10Y, 1.869% rose 6.1 basis points to 1.845% Wednesday, the second-highest level this year. Yields and debt prices move opposite each other.
In other central bank action, the Bank of Canada on Wednesday held its rates steady at 0.25%, but said hikes will be coming this year to help it control high inflation. It also is considering letting maturing government bonds roll off its balance sheet.
U.S. data released Tuesday showed slippage in consumer confidence, on the back of rising prices and the highly contagious omicron variant of the coronavirus that causes COVID-19.
Of the 100 S&P 500 companies to already report fourth-quarter earnings, 17% missed analyst expectations, with 81% beating estimates, according to Refinitiv data. That compares with 84% beating estimates in the past four quarters. A busy after-hours calendar includes quarterly earnings from Tesla, Intel INTC, +1.35%, Whirlpool WHR, -0.22% and Xilinx XLNX, +1.28%.
Which companies were in focus?
- Texas Instruments Inc. shares TXN, +2.51% rose 2.5% after the chip group’s earnings topped Wall Street expectations.
- AT&T Inc. T, -8.42% stock fell 8.4% after the telecommunications giant topped earnings expectations.
- Boeing Co.’s stock BA, -4.82% shed 4.8% despite the aircraft maker reporting a much bigger-than-expected loss and hefty revenue miss.
- Tesla Inc. TSLA, +2.07% stock rose 2.1%, following a 7.8% drop from a three-day losing streak through Tuesday. Tesla will report earnings after the closing bell Wednesday.
- Mattel Inc. MAT, +4.33% shares rose 4.3% after The Wall Street Journal reported, citing company executives, that the toy maker had won back the rights to produce toys based on film characters from rival Hasbro Inc. HAS, -6.06%. Shares of Hasbro were down 6.1%.
How did other assets trade?
- The ICE U.S. Dollar Index DXY, +0.57%, a measure of the currency against a basket of six major rivals, was up around 0.5%.
- Oil futures CL00, +1.81% % rose, with West Texas Intermediate crude for March delivery up 2% to settle at $87.35 a barrel. Gold futures GC00, -1.82% declined 1.2% to settle at $1,829.70 an ounce, pulling back from a two-month high.
- The Stoxx Europe 600 SXXP, +1.68% rose 1.7%, while London’s FTSE 100 UKX, +1.33% gained 1.3%.
- The Shanghai Composite SHCOMP, +0.66% rose 0.6%, while the Hang Seng Index HSI, +0.19% rose 0.1% in Hong Kong and Japan’s Nikkei 225 NIK, -0.44% fell 0.4%.
—Barbara Kollmeyer contributed reporting