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Wall St ends down as Powell plops 50 bps rate hike on table

Published 04/21/2022, 07:48 AM
Updated 04/21/2022, 07:00 PM
© Reuters. FILE PHOTO: A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., April 16, 2021. REUTERS/Carlo Allegri/File Photo

© Reuters. FILE PHOTO: A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., April 16, 2021. REUTERS/Carlo Allegri/File Photo

By David French

(Reuters) - Wall Street's ended lower on Thursday, with the Nasdaq dropping more than 2%, as investors reacted to Federal Reserve officials including Chair Jerome Powell offering further signposting of aggressive interest rate hikes this year.

A half-point interest rate increase will be "on the table" when the U.S. central bank meets on May 3-4 to approve the next in what is expected to be a series of rate increases this year, Powell said.

With inflation running roughly three times the Fed's 2% target, "it is appropriate to be moving a little more quickly," Powell added in a discussion of the global economy at the meetings of the International Monetary Fund.

"The market is pricing in, at least, 50 basis points in May and June," said George Catrambone, head of trading at DWS Group.

"Powell, and many other Fed speakers, have been saying they want to get to control as quickly as possible, and that is saying to the market that they are going to go aggressively."

Earlier on Thursday, San Francisco Federal Reserve President Mary Daly said she supports raising the U.S. central bank's target for overnight borrowing costs to 2.5% by the end of this year, but whether or how much further it will need to rise will depend on what happens with inflation and labor markets.

The remarks by Fed officials hijacked initial momentum which the markets received from positive earnings. All three major indexes opened higher, boosted by strong results from heavyweight Tesla (NASDAQ:TSLA) and airline operators.

However, gains were eroded through the morning session and the S&P 500 and Nasdaq had already reversed course by the time Powell spoke.

The Dow Jones Industrial Average fell 368.03 points, or 1.05%, to 34,792.76, the S&P 500 lost 65.79 points, or 1.48%, to 4,393.66 and the Nasdaq Composite dropped 278.41 points, or 2.07%, to 13,174.65.

Bond yields also breached fresh multi-year peaks. Yields on the two-year U.S. Treasury, the most sensitive to interest changes, hit their highest in three years before coming off slightly. [US/]

High-growth stocks, including those of Alphabet (NASDAQ:GOOGL) Inc and Amazon.com Inc (NASDAQ:AMZN), fell as investors fretted about how the higher rate environment would impact their future growth potential. Meta Platforms Inc declined 6.2%, taking its losses in the last two days to 13.5%.

Netflix Inc (NASDAQ:NFLX) slumped 3.5%, taking its market capitalization below the $100 billion mark for the first time since January 2018. It was the second day of declines for the streaming giant after its quarterly earnings revealed a first drop in subscriber numbers in a decade, with further falls likely.

The forecast prompted William Ackman to liquidate a $1.1 billion bet on Netflix, with the billionaire investor writing the firm's future was too uncertain to hold onto his position.

The 1.7% fall in the broader technology index was one of the worst among the sectors, with all 11 major industries ending lower. Energy was hit the hardest, despite crude prices gaining. [O/R]

Alcoa (NYSE:AA) Corp was another to slide after posting results. The aluminum producer tumbled 16.9%, its biggest fall since March 2020, as the Russia-Ukraine conflict impacted its business.

There were some bright spots though. Tesla, the world's most valuable automaker, rose 3.2% after its results beat Wall Street expectations as higher prices helped it overcome supply-chain chaos and rising costs.

Airline stocks also maintained their recent momentum. United Airlines Holdings (NASDAQ:UAL) Inc and American Airlines (NASDAQ:AAL) Group Inc climbed 9.3% and 3.8%, respectively, after they predicted a return to profit in the current quarter due to booming travel demand.

© Reuters. FILE PHOTO: A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., April 16, 2021. REUTERS/Carlo Allegri/File Photo

The volume on U.S. exchanges was 12.27 billion shares, compared with the 11.65 billion average for the full session over the last 20 trading days.

The S&P 500 posted 78 new 52-week highs and 16 new lows; the Nasdaq Composite recorded 73 new highs and 367 new lows.

Latest comments

Instead of 50 increase by 75 bp and don't touch it for the rest of 2022. It will spare the markets from cascading turbulence.
Tesla's costs for Q1 were based on old inventory that they've run down which they bought on last year's supplier contracts - now they are having to renew their supplier contracts and much of the costs are going to be 30% higher - so if Tesla then raise their consumer prices by 30%, what will that do to demand, when consumers are feeling inflation hit their pockets hard.???
Correct, No competition. Tesla had a 2X demand the day after the Super Bowl when there were 6 commercials for non-Tesla EVs. This means other companies paid advertising dollara to double Tesla’s sales. People got on the internet, compared EVs and bought Teslas.
Exactly. Mercedes just announced their EV ran 1,000 miles on a single charge. No compettion?… 🙄
not yet, its nice to have a mercedes run on 1000 miles battery. But you have to be realistic on scaling and market penetration. Itll be years before they make a significant impact.
three times the FED's 2% target - try 9 times for a more realistic analysis of US inflation - and the input costs for production in Germany was 30% last month - wait till that travels down the supply chain to the consumer!!!
Maybe we can think of today as the next fed day? It's out of the way now?
If so, markets will rally when Powell announces, just like they did in March.
Here we go again!
started falling hard way before he talked...
that would be the insiders who knew what he was going to say - Pelosi, Yellen - the usual suspects
Just make containers shipped to states and the super inflation will turn alright!!
This will be 'shrugged' off later today or tomorrow like everything other piece of news that should make stocks go down. What we've learned so far: 1. The economy and equities can grow forever (a.k.a. infinite growth on a finite planet in a waste-is-growth Landfill Economy) 2. Higher energy costs have near-zero effect on the economy and stocks. 3. The Federal Reserve will deliver a soft landing which reduces inflation back to near-zero while the economy and stocks continue lofting higher. 4. Higher food costs and global food scarcities have near-zero effect on the economy and stocks. 5. Supply chains unraveling has near-zero effect on the economy and stocks. 6. Deglobalization has near-zero effect on the economy and stocks. 7. Higher interest rates have near-zero effect on housing, the economy and stocks. 8. The continual evolution of more contagious variants of Covid-19 has near-zero effect on the economy and stocks. 9. There are no speculative bubbles in housing, stocks or other assets.
Can't believe four people actually disagreed with your post.
 Probably the Wall St shills that want you on the titanic when it sinks
I think some manipulation is going on. For example, DQ posted outstanding results in Q1 today. Traded nicely as expected, then all of a sudden began to tank massively, hours before Powell spoke. Something is not quite right. Record earnings for other stocks too, yet the market is diving. And recession talks and interest hikes don't explain it. Maybe poor, over emotional speculators either selling or jumping in short positions on a whim?
What a racket the American.stick.exchange is...can't even let stocks gain a little.steam before they scalp big oney sooo.desperate right now...days of weekly gsins.are GONE!!
  Up only ~40% if you look from Feb 2020 to Nov 2021.  For most of the latter part of Trump's 1 term, the market was in a trumpet/megaphone pattern, broken to the upside by Biden's election.  It was up on anticipation of having better leadership.  Market then up ~35% after anticipation confirmed w/ Biden's election.
The Biden uptrend would still be on now if it wasn't for Trump's bromance Putin's warmongering.
  The Biden uptrend would still be on now if it wasn't for Trump's bromance Putin's warmongering.
This is strange as the market is dropping before the news come…. Somebody new something ahead of fime
Cant you guys at Fed just shut up and do your work !
You would that with a question mark, not an exclamation point.
Well it's obvious that Ginsler is in bed with Wall Street. He does absolutely nothing about this obvious manipulation. Same speeches over and over and over again resulting in the same market reaction like the news is new
Wall Street is loaded with lemmings. Akerman bit the bullet yesterday. Today, others are reevaluating positions and selling the dogs. See you at the bottom!
Its been going on for months with stupid speeches.
Don't be idiots.  At the time of this article, the market was green.
pathetic market.
Time for another dodgy tweet from Elon
Is it rising? Falling is rising? Mmmkay
The moment you look at it is not the marker. It was up about 300 pts...
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