Stocks dip as Fed holds rates steady, hints at future hike

Stocks retreated on Wednesday after the Federal Reserve said it would leave interest rates unchanged but indicated another hike on the horizon.

The three major indexes closed at session lows. The S&P 500 dropped 0.94 per cent to 4,402.20. The Nasdaq Composite slid 1.53 per cent to 13,469.13, weighed on by a drop of more than 2 per cent in Microsoft and roughly 3 per cent declines in Nvidia and Google-parent Alphabet. The Dow Jones Industrial Average lost 76.85 points, or 0.22 per cent, to 34,440.88.

Shares of newly public Instacart and Arm Holdings were under pressure on Wednesday, with both stocks trading near their IPO price. Shares of Instacart dropped more than 10 per cent and briefly broke below the company’s $30 per share IPO price. Arm Holdings fell more 3 per cent to about $53 per share. The chip stock’s IPO came in at $51 per share.

The Fed held rates steady, as was widely anticipated. But the central bank indicated that one more rate hike is expected before the end of the year in its economic projections. The central bank signalled it would end its hiking campaign after that increase and begin cutting rates next year — though keeping rates at a higher level for the year than signalled in June.

The markets gyrated as traders listened to Fed Chair Powell give his outlook for rates.

Powell said that the central bank would “proceed carefully” in raising rates further but the Fed chief also noted there is more work to do in the fight against inflation.

Powell also commented that a soft landing for the economy was still possible and his primary objective, but not his baseline scenario. The three major indexes slid while Powell spoke and continued to tumble in the final half-hour of trading.

Investors had been buying up tech shares and other growth stocks this year on the hope that Fed would already be done tightening policy at this point.

The US 2-year Treasury yield jumped to its highest level since July 2006, while the 10-year Treasury yield reached a high not seen since November 2007. Those moves raised concerns about the impact of higher rates and likely put pressure on tech stocks.

In its morning note, NAB invoked Britney Spears’ hit single, ‘Baby One More Time’: “To the extent that the above represents the ‘hawkish pause’ that most expected – indeed arguably a little more hawkish than many thought likely – Fed chair Powell didn’t exactly twist the hawkish knife in his post-meeting press conference.

Turning to US sectors, mostly closed lower. Consumer Staples was the best performer, whilst Communication Services was the worst.

In commodity-related news, Indonesia's halt on new mining output quotas for 2023, exacerbated by delays and investigations into illegal mining, is causing a surge in nickel ore prices and prompting some production facilities to suspend operations due to a shortage of nickel ore.

Futures

The SPI futures are pointing to a 0.3 per cent fall.

Currency

One Australian dollar at 7:25 AM was buying 64.46 US cents.

Commodities

Gold added 0.69 per cent. Silver gained 1.62 per cent. Copper rose 0.77 per cent. Oil fell 1.01 per cent.

Figures around the globe

European markets closed higher. London’s FTSE gained 0.93 per cent, Frankfurt added 0.75 per cent, and Paris closed 0.67 per cent higher.

Turning to Asian markets, Tokyo’s Nikkei fell 0.66 per cent lower, Hong Kong’s Hang Seng lost 0.62 per cent while China’s Shanghai Composite closed 0.52 per cent lower.

The Australian sharemarket closed 0.46 per cent lower at 7,163.

Ex-dividends

Capitol Health (ASX:CAJ) is paying 0.5 cents fully franked
Count Limited (ASX:CUP) is paying 2.25 cents fully franked
Eureka Group Ltd (ASX:EGH) is paying 0.67 cents unfranked
Embelton Limited (ASX:EMB) is paying 20 cents fully franked
Genesis Energy Ltd (ASX:GNE) is paying 8.096 cents unfranked
Lindsay Australia (ASX:LAU) is paying 3 cents fully franked
Lycopodium Limited (ASX:LYL) is paying 45 cents fully franked
NRW Holdings Limited (ASX:NWH) is paying 8 cents fully franked
Pacific Smiles Grp (ASX:PSQ) is paying 2.27 cents fully franked

Dividends payable

Air New Zealand Ltd (ASX:AIZ)
ARN Media Ltd (ASX:A1N)
Australian Ethical Investment Ltd (ASX:AEF)
Bega Cheese Ltd (ASX:BGA)
Downer EDI Ltd (ASX:DOW)
Ingenia Communities Group (ASX:INA)
Kip McGrath Education Centres Ltd (ASX:KME)
Netwealth Group Ltd (ASX:NWL)
oOh media Ltd (ASX:OML)
REA Group Ltd (ASX:REA)
ResMed Inc (ASX:RMD)
Rio Tinto Ltd (ASX:RIO)
Shaver Shop Group Ltd (ASX:SSG)
Sonic Healthcare Ltd (ASX:SHL)
Steadfast Group Ltd (ASX:SDF)

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
Disclaimer

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