Overnight Market Wrap: 3 November 2022

Overnight Market Wrap: 3 November 2022

Key Points:

  • S&P 500 Suffers Worst ‘Fed Day’ Since January 2021
  • Powell says it’s premature to think about pausing rate hikes
  • The Fed chief also notes we still have ‘some ways to go’

Stocks sold off as Jerome Powell continued to sound unequivocally hawkish as the Federal Reserve pushed ahead with its most-aggressive tightening campaign since the 1980s to thwart inflation.

The S&P 500 suffered its worst rout on a Fed decision day since January 2021. Stocks came decidedly lower after Powell said the Fed still ‘has some ways to go’ in its policy cycle, adding that it’s premature to think about a pause as rates could peak at higher levels than previously thought. The move wiped out an earlier rally driven by his remarks that a slower pace of hikes could come as soon as December.

The hint of a potential downshift in tightening saw estimates for the Fed peak in policy rates for 2023 briefly drop below 5% right after the announcement. But by the end of the session, forecasts extended to a new cycle high of around 5.1% for the May meeting.

Megacap tech bore the brunt of the selling, with giants like Apple Inc. and Tesla Inc. tumbling more than 3.5%. In late trading, Qualcomm Inc., the biggest maker of smartphone processors, slumped on a weak forecast. Two-year US yields — which are more sensitive to imminent Fed moves — reversed course and pushed higher. The dollar gained.

The Federal Open Market Committee said that “ongoing increases” will still likely be needed to bring rates to a level that’s “sufficiently restrictive to return inflation to 2% over time,” in fresh language added to the statement. Officials unanimously decided to lift the target for the benchmark rate by another 75 basis points to a range of 3.75% to 4%, its highest level since 2008.

Data Wednesday showed hiring at US companies rose in October by more than forecast, underscoring resilient labor demand despite the Fed’s efforts to cool the economy. A strong job market has fueled fast wage growth, contributing to rapid inflation and putting pressure on the Fed to aggressively tighten monetary policy.

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