U.S. stocks plunged Thursday, giving back more than all the gains from the biggest single-day rally for the S&P 500 in two years, as Treasury yields jumped and investors peeled away from a Fed-induced rally and looked to the impact of near-term rate hikes on growth prospects for the world's biggest economy.
The Federal Reserve, as expected, boosted its benchmark Fed Funds rate by 50 basis points, to a range of 0.75% to 1%, while detailing the first official plans to reduce its $8.9 trillion balance sheet. Chairman Jerome Powell, however, added a dovish caveat to the decision, suggesting that core inflation may have peaked and that a 75 basis point rate hike is not being "actively considered" by policymakers.
The comments trigged a solid rally on Wall Street yesterday, and provided an early boost to European shares and laid a comfortable runway for the Bank of England, which boosted its Bank Rate by 25 basis points, to 1%, in its fourth rate hike in five months today in London.
U.S. stocks, however, failed to follow and with Treasury bonds lurching higher, taking 10-year notes a fresh December 2018 peak of 3.10%, and the dollar back on the march, rising 1.3% against its global peers to a near 20-year high of 103.94, investors may be willing to re-assess any dovish take from Powell's post-meeting press conference.
Any bets on an inflation pullback, as well, have been chilled in the short-term amid another lurch higher in oil prices, which hit a 5-week high earlier in the session after OPEC members agreed to only modest increases in their monthly output even as European officials move to ban energy exports from Russia.
"The market is way too optimistic about the Fed's ability to tame inflation. The Fed is hiking aggressively into a weakening economy," said Nancy Davis, portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge Exchange-Traded Fund (IVOL). "They can raise rates as much as they want – rate hikes don’t put more truckers on the roads."
The Dow Jones Industrial Average was marked 1,063.09 points lower by the close of trading while the S&P 500 fell 153.3 points to extend its year-to-date decline to 12.9%.
The Nasdaq Composite slumped 647.1 points, or just under 5%, to extend the tech-focused benchmark's year-to-date decline to just under 22%. It was the third worst point decline in Nasdaq history and the worst since March of 2020 when stocks were hit hard by the start of the covid pandemic.
Twitter (TWTR) shares were one of the more active names throughout the session, closing 2.65% after Tesla (TSLA) CEO Elon Musk said he's received around $7.1 billion in new equity funding, including a $1 billion contribution from Oracle (ORCL) founder Larry Ellison, to help finance his $44 billion takeover of the social media group.
Shopify (SHOP) shares tumbled 15% after the e-commerce platform posted weaker-than-expected first quarter earnings and unveiled plans to buy logistics group Deliverr for around $2.1 billion.
eBay (EBAY) followed suit, slumping 11.7% after the online marketplace added to a spate of muted outlooks from consumer-facing tech groups that overshadowed solid first quarter earnings.
Meta Platforms (FB) shares moved 6.77% lower in pre-market trading amid reports that the social media and metaverse-focused tech group is looking to slow hiring for the remainder of the year as it grapples with surging costs.
