Markets are mostly pricing in a recessionary scenario
Stocks are finally catching on to the idea that the Federal Reserve is willing to push the economy into a recession to control inflation, according to Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance.
“The market is starting to believe that the Fed is willing to trigger a recession to bring inflation back down,” Zaccarelli said.
He added that a recession scenario appears to be about two-thirds priced in because stocks are down about 20% from all-time highs, rather than 30%.
“We would remain cautious in the near term as the Fed is determined to keep raising rates until inflation begins to fall closer to its Fed funds target,” he said.
—Carmen Reinicke
Tech leads S&P 500 rebound
Tech stocks led a rally in the S&P 500 that pushed the broader market index up about 1% on the day at one point.
As of 2:49 pm ET, the S&P 500 technology sector was up 1%, with Nvidia, DXC Technology and Skyworks among the top performers. Megacap Microsoft technology shares also rose more than 1%.
– Fred Imbert
Market rebounds in volatile trade as Powell speaks
Stocks recovered from session lows as Powell began his press conference.
The Dow and S&P 500 were around flat as of 2:40 p.m., while the Nasdaq Composite was up 0.1%. The major averages fell sharply after the Fed announced its decision to raise rates by 75 basis points, giving up gains from earlier in the day.
Aggressiveness signaled by Fed is a surprise, could risk recession, says BofA
The Federal Reserve raised interest rates by 0.75 percentage points on Wednesday, its third consecutive increase of that size, to cool high inflation.
The central bank also raised its terminal rate, how high it expects to rise before stopping, to 4.6% in 2023. By the end of the year, it will reach 4.4%, meaning that there will be at least one more increase of 0.75 percentage points. .
This is more than expected and may indicate that the Fed is ready to push the US economy into a recession.
“The extent of the aggressiveness that the Fed is signaling surprised us,” said Mark Cabana, head of U.S. short rates at Bank of America. “This is very consistent with the recent shift in the Fed’s comments, and certainly looks like a Fed that is absolutely fine with risking a recession, pushing inflation down with tight monetary policy.”
-Carmen Reinicke, Patti Domm
The market reverses after the Fed announcement
The major averages gave up gains from earlier in the day after the Fed raised rates and said it sees the terminal rate rising to 4.6%.
The Dow, which was up more than 100 points before the announcement, was down more than 200 points. The S&P 500 and Nasdaq were also lower.
—Fred Imbert
Stocks making the biggest moves at noon: Freyr Battery, Stitch Fix and more
Here are some of the stocks making the biggest moves during midday trading:
- Freyr Battery: Shares of the electric vehicle battery maker jumped 17.6% after Morgan Stanley said the company’s price target was double what it is now. The bullish price estimate was three times higher than its current price.
- Stitch Fix: Stitch Fix rose about 12%, even after the company posted weak quarterly numbers. The online styling company lost 89 cents per share last quarter on net income that fell 16% from the same quarter a year ago.
- General Mills: Shares of the food maker rose 7% after the company posted better-than-expected quarterly profit. General Mills also raised its full-year sales forecast amid higher prices and strong demand for cereal, snacks and pet food.
Read the full stock list here.
—Sarah Min
Expect ‘short-lived’ relief rally following Fed decision, says Wolfe Research’s Senyek
Prepare for a brief market rally after the Federal Reserve unveils its rate hike decision on Wednesday, says Wolfe Research’s Chris Senyek.
“Our sense is that markets could be set up for a short-lived dovish recovery if the Fed hikes +75bps and Powell doesn’t ramp up his hawkish rhetoric further,” he wrote in a note to clients. “That said, we don’t anticipate having to change our bearish call in the medium term.”
Looking ahead, Senyek expects core inflation to remain sticky. That will likely force the Fed to raise the fed funds rate to 5% or more if it hopes to reach its long-term goal of 2%.
Adam Crisafulli of Vital Knowledge agreed with Senyek’s sentiment.
“The consensus view is that stocks will tighten after the Fed this afternoon before delivering the full move and then some Thursday, Friday and beyond,” he said in a note to clients on Wednesday.
— Samantha Subin
2-year Treasury note yield exceeds 4% for first time since October 2007
The yield on the 2-year Treasury note topped 4% on Wednesday for the first time since 2007, as traders questioned whether the Federal Reserve will need to hike further to control rising inflation.
The 2-year Treasury yield rose 4 basis points to 4.006%. It last touched this level in October 2007. The benchmark 10-year Treasury yield was last traded at 3.561%, down about 1 basis point, after hitting a maximum of 11 years this week.
According to some investors, the reversal, which continues to push short-term rates above long-term rates, signals a growing risk of a recession ahead.
– Fred Imbert, Samantha Subin
Only two stocks hit new 52-week highs on Wednesday
General Mills and Northrop Grumman were the only two S&P 500 stocks to hit new 52-week highs during Wednesday morning trading.
General Mills is trading at all-time highs since 1927, and Northrop Grumman is at its highest point since the 1994 merger between Northrop Aircraft and Grumman Aerospace.
Meanwhile, eight stocks in the broader market index hit new 52-week lows, including Match Group, which has been trading at record lows since its 2015 IPO.
Here are the S&P 500’s new 52-week lows:
– Christopher Hayes, Sarah Min
Oil futures soften
Oil futures gave up a day’s gains after Russian President Vladimir Putin announced a partial military mobilization for the war in Ukraine.
U.S. benchmark West Texas Intermediate futures were down 0.2 percent at $83.77 a barrel. European benchmark Brent crude futures were trading at $90.67 a barrel.
While the ongoing war and sanctions on Russia have put pressure on energy supplies, particularly in Europe, oil prices have trended lower in recent months, in part as worries about a global recession have dampened demand prospects.
– Jesse Pound
Defensive sectors led Wednesday’s gains
Defensively-leaning S&P 500 sectors led most of the benchmark’s gains on Wednesday.
All 11 sectors – with the exception of communication services – were positive. Utilities and consumer staples were the best-performing sectors, each up more than 1%. Real estate and industrial companies also added 1%.
— Samantha Subin
Existing home sales decline in August
Sales of existing homes declined in August at the slowest monthly pace since June 2020, the National Association of Realtors said Wednesday.
Previously owned home sales fell 0.4% in August from last month to a seasonally adjusted annualized rate of 4.80 million units and were 19.9% lower year-on-year.
— Diana Olick, Samantha Subin
Stocks open higher ahead of Fed decision
Stocks opened higher on Wednesday as investors looked ahead to the Federal Reserve’s decision on interest rates. The Dow Jones Industrial Average gained 171 points, or 0.56%. The S&P 500 rose 0.57% and the Nasdaq Composite rose 0.34%.
— Samantha Subin
The Fed has a big agenda besides the expected rate hike
In addition to its expected interest rate hike, the Federal Reserve has plenty of other topics on the docket for its two-day meeting that concludes Wednesday.
The central bank is expected to raise benchmark interest rates by 0.75 percentage points.
But along with that, it will also provide updates on its economic forecasts and rates for the next three years. Central to this outlook will be the “terminal” rate, or the point at which the Fed believes it will need to stop hiking to fight runaway inflation.
Chairman Jerome Powell will also hold his traditional post-meeting press conference, where he is expected to emphasize the Fed’s commitment to fighting inflation, even if it means harm to the broader economy.
“Fighting inflation is a job,” said Eric Winograd, senior economist at AllianceBernstein. “The consequences of not fighting inflation are greater than the consequences of fighting it. If that means recession, that’s what it means.”
—Jeff Cox
Brace yourself for the disappointment that came out of the Fed meeting, Comerica’s Lynch says
Investors should brace for more jitters after the Federal Reserve’s latest rate hike meeting, as inflation numbers show lingering pressures beyond food and energy, said John Lynch of Comerica Wealth Management.
“Investors will be looking for clarity on the scope of the Fed’s tightening campaign and we suspect they will be disappointed,” he said, adding that inflation moves further complicate the Fed’s decision-making.
Against this backdrop, Lynch expects stocks to retest June lows and believes third-quarter earnings, and revisions to corporate guidance, will confound investor sentiment.
“Fortunately, history shows better market performance after the midterm elections, so we encourage investors to hold specific allocations,” he said.
— Samantha Subin
Financial and tech earnings should pick up in 2023, Credit Suisse’s Golub says
Energy gains have broadly outperformed the broader S&P 500 this year, but Credit Suisse’s Jonathan Golub expects the tables to turn in 2023.
“While Energy EPS is forecast to grow more than 100% in 2022, Finance and TECH+ earnings are forecast to experience full contraction,” he wrote in a note to clients on Wednesday. “However, these distortions are expected to reverse in 2023, with Energy EPS expected to contract by -12%…