Nov. 03, 2022 at 2:41 pm

S&P 500, Dow, Nasdaq dip on disappointment Fed expects more rate hikes

November 3, 2022no commentNo tags

Damian J. Troise

Stocks started the day lower on Wall Street and Treasury yields are again bumping up against multiyear highs a day after the Federal Reserve indicated that its fight against inflation is far from over.

The S&P 500 fell 0.7% as of 10:28 a.m. Eastern. The Dow Jones Industrial Average fell 134 points, or 0.4%, to 32,015 and the Nasdaq fell 0.8%.

Technology stocks were among the biggest weights on the market. Apple fell 2.8%.

The yield on the 10-year Treasury rose to 4.15% from 4.09% late Wednesday. Bond yields are hovering around multiyear highs as the Fed raises interest rates. That has prompted mortgage rates to more than double this year and it continues putting pressure on stocks.

Across the Atlantic, the Bank of England made its biggest interest rate increase in three decades. European markets were lower and Asian markets closed slightly lower.

What the Fed did and said

The Fed raised its benchmark fed funds rate by 0.75 percentage point on Wednesday, as expected. Stocks initially rallied on the news until Fed Chairman Jerome Powell said in his press conference that the Fed’s job in fighting inflation was far from over. He suggested the pace of rate hikes may slow in coming months but that the ultimate level that the fed funds rate may have to reach could be higher than previously thought, souring the mood on Wall Street.

In September, the Fed had a median projection for the fed funds rate to hit 4.4% this year and then peak at 4.6% in 2023 before heading lower. After Powell’s comments though late Wednesday, Wall Street is evenly split on whether the central bank ultimately raises rates to a range of 5% to 5.25% or 5.25% to 5.50% next year. After Wednesday’s move, the fed funds target range sits at 3.75%-4%, the highest level since 2008.

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What higher rates could mean

Higher rates not only slow the economy by discouraging borrowing, they also make stocks look less appealing compared to lower-risk assets like bonds and CDs.

Investors had been hoping for economic data signaling that the Fed might ease up on rate increases. The fear is that the Fed will go to far in slowing the economy and bring on a recession.

Hotter-than-expected data from the employment sector this week has so far signaled that the Fed has to remain aggressive. On Friday, Wall Street will get a broader monthly employment update from the U.S. government.

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Overseas markets

Stubbornly hot inflation has been prompting central banks around the world to also raise interest rates. On Thursday, the Bank of England announced its biggest interest rate increase in three decades. The increase is the Bank of England’s eighth in a row and the biggest since 1992.

European and Asian markets were lower.

Earnings watch

Wall Street has also been closely watching the latest company earnings reports. The reports have been mixed and many companies have warned that inflation will likely continue pressuring operations.

Booking Holdings rose 3.7% after reporting strong third-quarter financial results. Chipmaker Qualcomm fell 9.7% after giving investors a weak profit and revenue forecast.

S&P 500, Dow, Nasdaq dip on disappointment Fed expects more rate hikes

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