NEW YORK (Reuters) – Wall Street tumbled on Thursday, with investor risk appetite dampened by worries that the Federal Reserve’s restrictive monetary policy will remain in place for longer than anticipated.
All three major U.S. stock indexes ended the session deep in negative territory and benchmark U.S. Treasury yields touched a 10-year peak the day after Fed Chairman Jerome Powell warned inflation still has a long way to go before approaching the central bank’s 2% target.
Interest rate sensitive megacaps dragged the S&P 500 and the Nasdaq down to their lowest closing levels since June.
On Wednesday, at the conclusion of its two-day monetary policy meeting, the central bank left the Fed funds target rate unchanged at 5.25%-5.50%, as expected.
But revised economic projections, including the closely watched dot plot, showed interest rates will remain elevated through next year, dampening hopes for easing of policy before 2025.
“If you do have rates higher for longer, you have more strain on the system and more pressure on the economy,” said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta. “It gives people another chance to say that the lag time of higher rates – which we’re just starting to feel – might really bite.”
Martin added that with higher rates, along with student loan payments resuming, the UAW strike, a potential government shutdown, along with higher Treasury yields, climbing crude prices and a strengthening dollar, “We’re ratcheting up the possibility that we won’t get a soft landing.”
An unexpected 9% drop in initial U.S. jobless claims, to the lowest level in eight months, played into the Fed’s notion that the labor market remains too tight, putting upward pressure on wages, and the economy is resilient enough to withstand higher rates for longer.
“Higher for longer” has become a common credo among the central banks of the world’s biggest economies as global policy tightening, in order to tame inflation, reaches its peak.
“The headlines this morning were quite something when it came to central banks,” Martin said. “All of them were hawkish.”
According to preliminary data, the S&P 500 lost 72.79 points, or 1.64%, to end at 4,329.91 points, while the Nasdaq Composite lost 246.56 points, or 1.83%, to 13,222.56. The Dow Jones Industrial Average fell 373.50 points, or 1.08%, to 34,067.38.
Semiconductor firm Broadcom dropped following a report that Alphabet-owned Google’s executives discussed dropping the company as a supplier of artificial intelligence chips as early as 2027.
Klaviyo Inc shares dipped the day after its debut as a public company, as another recent IPO Arm Holdings, threatened to break below its $51 offer price.
Shares of FedEx jumped after the package delivery company delivered a big profit beat.
Fox Corp and News Corp gained advanced following news that Rupert Murdoch will step aside as chairman.
(Reporting by Stephen Culp in New York; Additional reporting by Ankika Biswas and Shristi Achar A in Bengaluru; Editing by David Gregorio)
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