Wall Street saw a significant downturn in a widespread sell-off on Thursday, driven by growing concerns that the Federal Reserve’s commitment to a restrictive monetary policy would endure for a longer period than initially expected.
All three major U.S. stock indices experienced losses exceeding 1%, and the benchmark 10-year U.S. Treasury yields reached a 16-year peak following Federal Reserve Chairman Jerome Powell’s cautionary remarks regarding inflation, suggesting that it still has a considerable distance to cover before aligning with the central bank’s 2% target.
Interest rate-sensitive mega-cap stocks, notably Amazon.com (NASDAQ:AMZN), Nvidia Corp (NASDAQ:NVDA), Apple Inc (NASDAQ:AAPL), and Alphabet (NASDAQ:GOOGL) Inc., led the S&P 500 and the Nasdaq Composite to their lowest closing levels since June.
During the Federal Reserve’s two-day monetary policy meeting, which concluded on Wednesday, the central bank decided, as expected, to leave the Fed funds target rate unchanged at 5.25%-5.50%.
However, revised economic projections, including the closely-watched dot plot, indicated that interest rates would remain elevated well into the next year, dampening hopes for any policy easing before 2025.
Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta, commented, “If rates stay elevated for an extended period, it will place more strain on the system and exert greater pressure on the economy. It provides an opportunity for individuals to consider that the lag effect of higher rates, which we are just beginning to experience, might have substantial consequences.”
Martin continued, “We are increasingly raising the possibility that we may not achieve a soft landing,” citing economic challenges posed by higher rates, the resumption of student loan payments, the UAW strike, a potential government shutdown, surging Treasury yields, rising crude oil prices, and a strengthening U.S. dollar.
An unexpected 9% decline in initial U.S. jobless claims, reaching their lowest level in eight months, bolstered the Fed’s belief that the labor market remained exceedingly tight, exerting upward pressure on wages. This reinforced the notion that the U.S. economy possessed the resilience to endure higher rates over an extended period.
The phrase “higher for longer” has become a common mantra among the world’s largest central banks as part of a global effort to combat inflation as it reaches its zenith.
Regarding central banks, Martin remarked, “The headlines this morning were quite something when it came to central banks. All of them were hawkish.”
At 4:12 PM ET, the Dow Jones Industrial Average plummeted by 370.46 points, or 1.08%, settling at 34,070.42. The S&P 500 recorded a loss of 72.2 points, or 1.64%, concluding at 4,330, while the Nasdaq Composite witnessed a decline of 245.14 points, or 1.82%, reaching 13,223.99.
Every one of the 11 major sectors in the S&P 500 saw losses of nearly 1% or more, with real estate stocks experiencing their most significant single-day percentage drop since March.
Semiconductor firm Broadcom (NASDAQ:AVGO) slid 2.7% following reports suggesting that executives at Google’s parent company, Alphabet, had contemplated discontinuing their reliance on the company as a supplier of artificial intelligence chips as early as 2027. Consequently, the Philadelphia chip index dropped 1.8%.
Klaviyo Inc. gained 2.9% on its first day as a publicly-traded company, while another recent IPO, Arm Holdings (NASDAQ:ARM), dipped 1.4%, settling just a dollar above its $51 offer price.
FedEx (NYSE:FDX) shares surged by 4.5% after the package delivery company reported a significant profit beat.
Fox Corp and News Corp (NASDAQ:NWSA) saw gains of 3.2% and 1.3%, respectively, following the news that Rupert Murdoch would step aside as chairman.
Declining issues surpassed advancing ones on the NYSE by a ratio of 5.89-to-1, while on Nasdaq, a 2.80-to-1 ratio favored decliners.
The S&P 500 saw three new 52-week highs and 29 new lows, while the Nasdaq Composite recorded 22 new highs and 373 new lows.
Trading volume on U.S. exchanges reached 10.76 billion shares, compared to the 10.12 billion average over the last 20 trading days.
