Wall Street closes lower, surprised by an even more aggressive Fed than expected

Wall Street closes lower, surprised by an even more aggressive Fed than expected

A trader at the New York Stock Exchange (GETTY IMAGES NORTH AMERICA/SPENCER PLATT)

A trader at the New York Stock Exchange (GETTY IMAGES NORTH AMERICA/SPENCER PLATT)

The New York Stock Exchange closed lower on Wednesday, taken by a US central bank (Fed) with even more aggressive monetary policy forecasts than expected.

The Dow Jones lost 1.70%, the Nasdaq index fell 1.79% and the broader S&P 500 index fell 1.71%.

After oscillating between the red and the green, the indices plunged into the red at the end of the session, to finish at their lowest level of the day.

The S&P 500 fell to its lowest level since mid-July.

The Fed raised its benchmark rate by 0.75 percentage point on Wednesday to bring it to a range of 3% to 3.25%.

But more than this new twist, which economists expected, Wall Street was surprised by the new projections of central bankers regarding rate changes.

Two-thirds of Fed members expect the key rate to rise above 4.50% next year, while traders have so far seen it mostly stay below this threshold.

Central bankers in Washington also rule out the possibility of a drop in this rate before 2024, while investors were counting on an easing in the second half of 2023.

“It was clearly a more aggressive Fed than anyone could have imagined,” said Art Hogan of B. Riley Wealth Management.

For Greg Bassuk, from AXS Investment, the New York market’s reaction to this Fed statement “demonstrates the discomfort of investors, harassed by macroeconomic uncertainty” and “corporate earnings warnings.”

“We could see a continuation of recent trends by the end of the week, as rates and the dollar rise, stocks and risk assets fall, as traders digest the Fed meeting,” said StoneX’s Matt Weller.

But for Art Hogan, the market also learned from Fed Chairman Jerome Powell’s press conference that the institution would decide its path based on macroeconomic data.

“They have wiggle room and can be less aggressive if the data warrants it,” said Angelo Kourkafas of Edward Jones.

In addition, for the analyst, if indeed the Fed has traced a rate path higher than expected, it has only been “more aggressive than on the margin”. “This does not change the general tone”, that of a battle against inflation that will continue for many months.

A projection that investors had largely made their own since Jerome Powell’s speech in Jackson Hole, Wyoming, at the end of August, which had weighed on stock markets and boosted bond yields.

In support of his analysis, Angelo Kourkafas mentioned the bond market, which after an initial inflection immediately after the Fed release, calmed things down.

The ten-year US government bond yield decreased to 3.52%, down from 3.56% the previous day.

On the equity side, the late-session drop was accentuated by rating heavyweights, particularly technology stocks, which are struggling with the prospect of tighter financing conditions.

Apple (-2.03%), Amazon (-2.99%) and Meta (-2.72%) lost more than 2%.

Statements by Russian President Vladimir Putin, who announced the partial mobilization of reservists and threatened to use nuclear weapons, helped defense stocks including Lockheed Martin (-0.09%), Northrop Grumman (-0.23 %) and General Dynamics (-0.40%). , float.

Rare good surprise of the day, the agri-food giant General Mills (+5.72% to 79.72 dollars), which published a net profit higher than expectations and raised its forecasts for the whole of its staggered 2023 financial year, which will be fulfilled At the end of May.

Cosmetics group Coty was also sought after (+3.21% to $8.04) after unveiling its strategic plan that plans to double sales of skin care products by 2025.

In the short term, the New York-based company has raised its revenue growth target for the first quarter of its staggered fiscal year 2023, which ends at the end of September.

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