By Isabel Wang and Joseph Adinolfi
U.S. stocks ended lower on Thursday after attempting to claw back Wednesday’s losses, as Treasury yields and the dollar climbed further after the Federal Reserve delivered a third jumbo interest-rate hike and signaled more to come.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.08% finished 107.10 points lower, or 0.4%, to 30,076.68
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.13% was down 31.94 points, or 0.8%, at 3,757.99
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.52% shed 153.39 points, or 1.4%, ending at 11,066.81
Stocks finished sharply lower Wednesday after a volatile session, with the Dow Jones Industrial Average losing 522 points, or 1.7%, while the S&P 500 declined 1.7% and the Nasdaq Composite dropped 1.8%. The S&P 500 is down more than 21% for the year, and the Nasdaq Composite has lost roughly 29% over that period.
What drove markets
U.S. stocks declined for most of the session on Thursday following Wednesday’s selloff after the Federal Reserve produced another 75 basis-point rate hike and reiterated its commitment to crush inflation, even if it means driving the U.S. economy into a recession.
“We will keep at it until the job is done,” Chair Jerome Powell said in a news conference on Wednesday after the Fed increased its policy interest rate for the third time in a row by 75 basis points to a range of 3% to 3.25%. “I wish there were a painless way to do that. There isn’t,” he added.
Investors were rattled by the Fed’s so-called dot plot, which tracks forecasts of the benchmark interest rate from individual policy makers. It produced a median forecast for a peak fed-funds rate of 4.6% in 2023 — above market expectations. Fed forecasts also implied that unemployment may rise significantly and the economy slow sharply.
“Powell failed to give the market the light at the end of the tunnel”, wrote Jeff Bierman, chief market technician at TheoTrade in emailed comments. “Even if he would have said 5% or 4.5%, the market would have calmed down because money managers would have an anchor datapoint. Instead, he left the market guessing once again, with no deadline for when the Fed will finish with QT.”
Bond yields surged to multiyear highs with the yield on the 2-year Treasury /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -2.19% trading at its highest since 2007. The yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -2.40% advanced to 3.705%, while the yield on the 30-year Treasury /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -2.64% climbed to 3.636%. Both the 10- and 30-year Treasury yields reached highest levels in more than 8 years.
Rhys Williams, chief strategist at Spouting Rock Asset Management, said markets are going to drift lower in short term as “most of the correction is behind us”.
“Especially in a time of quantitative tightening, where you’ve lost the biggest buyer of assets in the U.S. government, so you have illiquidity working against you. Williams told MarketWatch via phone. “But I think the higher the bond rates go, the faster we get into a recession era, and the quicker the 10 (year Treasury) will pivot. So maybe we need more pain in the short term, which will be better for the long term.”