Tech hot stock market led a broad equity retreat Thursday as Wall Street fretted about the hawkish message sent out by the Federal Reserve alongside its decision to hold interest rates steady.
The S&P 500 (^GSPC) sank 1.60% after losing almost 1.00% on Wednesday, and the Dow Jones Industrial Average (^DJI) dropped 1.00%. The tech-heavy Nasdaq Composite (^IXIC) fell about 1.80% to continue to lead the declines.
After combing through the central bank’s forecast, investors believe its policymakers see interest rates staying “higher for longer.” The debate is over just how long that “longer” will be, given the central bank signalled another hike at one of its final two meetings this year. Goldman Sachs has pushed back its forecast for a Fed rate cut to the fourth quarter of 2024.
Bank of England Holds Steady After 14 Consecutive Hikes
The prospect of a prolonged period of elevated rates has spooked some investors, as that would put pressure on stocks and bonds. The yield on the benchmark 10-year Treasury rose on Thursday, at one point touching its highest level in over 15 years.
However, Fed Chair Jerome Powell stressed policy will be dependent on economic data in his press conference. Official figures out Thursday showed jobless claims last week fell to their lowest level since January, the latest sign of strength in the US labour market.
The Bank of England decided to hold interest rates steady on Thursday, pausing tightening after hiking 14 times in a row after an unexpected slowdown in inflation. Elsewhere in European central banks, there were a couple of surprises: The Swiss National Bank kept its rates on hold. In contrast, Norway’s central bank signalled it could follow September’s hike with another in December.
Wall Street Sell-Off: Stock Market Prediction for the Next 5 Year
Asian shares were mixed on Friday after another slump on Wall Street driven by expectations that U.S. interest rates will stay high well into next year.
Hong Kong and Shanghai advanced, while Tokyo, Seoul and Sydney declined. U.S. futures edged higher, and oil prices rose.
Japan’s central bank kept its benchmark interest rate at minus 0.1%, as expected, but pledged flexibility in its policies.
High-growth stock finance is typically among the hardest hit by high rates, and Big Tech stocks took the brunt of the pain for a second straight day. Amazon fell 4.40%, Nvidia dropped 2.90%, and Telsa lost 2.60%. Cisco Systems also took a hit after it said it would buy Splunk, a cybersecurity company, for roughly $28 billion in cash. Cisco fell 3.90%, while Splunk jumped 20.80%.
Market in Turmoil as Rates Rise: When Will the Stock Market Recover?
Hot stock prices tend to fall when rates rise because stocks are riskier investments. Why chance their big swings when Treasurys are paying higher interest?
A 10-year Treasury is offering a yield of 4.48%, up from 4.40% late Wednesday and from only 0.50% three years ago. It’s near its highest level since 2007.
The two-year Treasury yield, meanwhile, wavered following some mixed reports on the economy. It slipped to 5.14% from 5.17% late Wednesday after climbing earlier in the morning.
One report showed fewer U.S. workers applied for unemployment benefits last week than expected. It was the lowest number since January.
A solid labour market helps calm worries about a possible recession. But it may also give U.S. households fuel to keep spending, which could keep upward pressure on inflation. That, in turn, could give the Fed more reason to keep rates higher for longer.
Manufacturing and Housing Industries Struggle
However, a separate report showed manufacturing in the mid-Atlantic region is contracting by much more than expected. A third report showed sales of previously occupied U.S. homes were weaker last month than economists expected.
Manufacturing and the housing industry have felt the sting of higher interest rates in particular and have struggled more than the broad job market.
In other trading, U.S. benchmark crude oil gained 66 cents to $90.29 per barrel in electronic trading on the New York Mercantile Exchange. It lost 3 cents on Thursday.
Brent crude oil, the pricing basis for hot stock international trading, picked up 56 cents to $93.86 per barrel.
The U.S. dollar rose to 148.06 Japanese yen from 147.58 yen. The euro slipped to $1.0654 from $1.0661.