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Jan. 5, 2022, 4:52 p.m. EST

Nasdaq books worst day in 11 months, S&P 500 skids 1.9% after Fed minutes surprise with talk of shrinking balance sheet

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By Joy Wiltermuth and Mark DeCambre

Stocks finished sharply lower Wednesday after the release of minutes of the Federal Reserve’s last policy gathering in 2021 showed discussion around a potentially faster pace of shrinking the central bank’s massive balance sheet and raising rates.

What did stock benchmarks do?

  • The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.03% shed 392.54 points, or 1.1%, to end at 36,407.11, its worst daily percentage drop since Dec. 20, according to Dow Jones Market Data.

  • The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.01% fell 92.96 points, or 1.9%, closing at 4,700.58, its steepest daily percentage fall since Nov. 26.

  • The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.30% tumbled 522.54 points, or 3.34%, finishing at 15,100.17, its sharpest daily percentage slump since Feb. 25, 2021.

What drove markets

Stocks tumbled into the close following the release of minutes from the latest Federal Open Market Committee meeting in December, which revealed a more hawkish tone by Fed officials grappling with taming what some have described as 1980s-like levels of inflation.

Minutes revealed robust talk among some Fed officials around the central bank potentially moving to raise rates quicker and cutting its current $8.8 trillion sized balance sheet faster than earlier anticipated to help tackle higher costs of living.

Read : Fed minutes suggest officials are primed to move away from easy policy stance

The market reaction to talk of faster-paced steps toward policy normalization surprised some on Wall Street. “It was maybe confirming what people had worried about previously, and now it’s out there in black and white, on paper, for everyone to see,” said John Carey, director for equity income at Amundi U.S., by phone.

“You can’t doubt it’s going to happen at this point. That reality is sinking in.”

See: Here’s what stock and bond market strategists say after Fed minutes point to the end of easy money

At the Dec. 14-15 meeting, Fed policy makers agreed to speed the wind-down of the central bank’s monthly asset purchases.

But Carey also expects the Fed to remain cautious about tightening monetary policy too much during its battle with inflation, particularly if the surge in COVID-19 infections hampers the economy, with some school districts hitting pause on in-person classes and difficulties emerging for planned industry conferences and other events major events , including the Grammy Awards , nearly two years into the pandemic.

“The problem could be resolved if the economy slows with omicron,” Carey said of inflation pressures.

Meanwhile, the minutes of the Fed meeting hastened a wreck in technology-related sectors /zigman2/quotes/210600213/delayed XX:SP500.45 +0.14% already gathering momentum on Wednesday. Shares of Google parent Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL -1.34% closed down 4.6%, off more than 7.6% from its Nov. 18 closing high of $2,996.77.

A rise in government bond yields also contributed to pressure on tech plays, as investors factored in the prospect of the higher borrowing costs if the Fed lifts interest rates as many as the three times as anticipated this year.

On the other hand, financials /zigman2/quotes/210599854/delayed XX:SP500.40 -0.12% , which benefit from a rising rate environment, still were headed solidly higher for the week.

US : Dow Jones Global
+8.77 +0.03%
Volume: 498.89M
May 20, 2022 5:03p
+0.57 +0.01%
Volume: 3.00B
May 20, 2022 5:03p
US : Nasdaq
-33.88 -0.30%
Volume: 4.64M
May 20, 2022 5:16p
add Add to watchlist XX:SP500.45
+3.13 +0.14%
Volume: 767.12M
May 20, 2022 5:03p
US : U.S.: Nasdaq
$ 2,178.16
-29.52 -1.34%
Volume: 2.45M
May 20, 2022 4:00p
P/E Ratio
Dividend Yield
Market Cap
$1436.95 billion
Rev. per Employee
add Add to watchlist XX:SP500.40
-0.66 -0.12%
Volume: 345.63M
May 20, 2022 5:03p
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