U.S. Stocks Close Mostly Lower Following Post-Fed Volatility

wallstreet sept18 14dec22 lt

After a positive start to the day, stocks saw substantial volatility following the Federal Reserve's highly anticipated monetary policy announcement on Wednesday. The major averages showed wild swings before eventually closing firmly in negative territory.

The major averages finished the day in the red but off their lows of the session. The Dow fell 142.29 points or 0.4 percent to 33,966.35, the Nasdaq slid 85.93 points or 0.8 percent to 11,170.89 and the S&P 500 dropped 24.33 points or 0.6 percent to 3,995.32.

The lower close on Wall Street came after the Fed announced its widely expected decision to slow the pace of interest rate increases but still signaled further rate hikes.

After raising interest rates by 75 basis points at four consecutive meetings, the Fed announced its decision to raise interest rates by 50 basis points to a target range of 4.25 to 4.50 percent.

The text of the Fed's accompanying statement was largely unchanged from last month, however, with the central bank reiterating that it anticipates ongoing increases in rates will be appropriate.

The economic projections provided along with the announcement also suggest the Fed expects rates to ultimately be raised higher than forecast back in September.

The median forecast suggests rates will be raised to a so-called terminal rate of 5.1 percent next year compared to the September projection of 4.6 percent.

Responding to the announcement, Ryan Sweet, Chief U.S. Economist at Oxford Economics, said the odds are increasing that the Fed will raise interest rates more than currently anticipated.

"There has been some good news on the inflation front, but the Fed can't dampen the inflation attributed to supply-shocks because the target fed funds rate is a blunt instrument that impacts only the demand-side of the economy," Sweet said.

He added, "This keeps the risk of a policy misstep high since the Fed needs to lean against the recent easing in financial market conditions."

The Fed's next monetary policy meeting is scheduled for January 31-February 1, with CME Group's FedWatch Tool currently indicating a 47.7 percent chance of another 50 basis point rate increase and a 42.8 percent chance of 25 basis point rate hike.

In his post-meeting press conference, Fed Chair Jerome Powell said it will require "substantially more evidence" inflation is on a sustained downward trend, likely attracting even more attention to the inflation data due ahead of the next meeting.

Sector News

Financial stocks showed a significant move to the downside following the Fed announcement, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index falling by 1.7 percent and 1.6 percent, respectively.

Considerable weakness also emerged among semiconductor stocks, as reflected by the 1.6 percent drop by the Philadelphia Semiconductor Index.

Chemical stocks also came under pressure late in the session, dragging the S&P Chemical Sector Index down by 1.4 percent.

Telecom, commercial real estate and steel stocks also moved to the downside, while some strength remained visible among pharmaceutical and transportation stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index advanced by 0.7 percent, while Hong Kong's Hang Seng Index rose by 0.4 percent.

Meanwhile, the major European markets moved to the downside on the day. While the German DAX Index dipped by 0.3 percent, the French CAC 40 Index slipped by 0.2 and the U.K.'s FTSE 100 Index edged down by 0.1 percent.

In the bond market, treasuries showed a lack of direction throughout the session before closing roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, crept up by less than a basis point to 3.503 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, although traders are also likely to keep an eye on a slew of economic data, including reports on weekly jobless claims, retail sales and industrial production.

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