March 23, 2023

Stocks Continue Selloff After Fed Rate Hike

Stocks in the US have prolonged the losses incurred after the Federal Reserve announced the new rates. Follow-up comments from the Fed’s Chairman, Jerome Powell, further sent the market into chaos.

Indexes Bare the Feds’ Brunt

The S&P 500 index dropped by 0.7% and the Dow lost 0.5% of its value in the fray. The Nasdaq index which is heavy on tech stocks fell by 1%. All these came after the first round of selloffs that saw the S&P 500 and the Dow Jones indexes both losing 1.7% while Nasdaq lost 1.8%. 

The recent round of losses makes it the 29th for S&P 500 this year, being the greatest number of losses since 2008 when the index recorded 34 rounds of decline, according to reports from Compound Advisors.

In the US economic reports, the initial unemployment claims jumped higher to 213,000 in the third week of September from a low of 208,000 the week before that. It was the lowest on record since May, according to the Department of Labor. Economists forecasted that there would be 217,000 claims, going by the consensus that was put together by Bloomberg.

Also, after the rate increase by the Feds and as an aftermath, the two-year Treasury yields rose close to 4.1%, being the highest it has gone since 2007. Meanwhile, the ten-year yield was still close to 3.5%, also its highest point since 2011.

More Rates to Follow Later

The US Federal Reserve raised interest rates by 75 basis points on Wednesday for the third consecutive time this year. That brought the Federal Funds interest rate to the 3.0% – 3.25% range from an initial 2.25% – 2.5% range.

Policymakers were expected to increase the interest rates by that percentage and to maintain it at that level because of the soaring inflation. That would set a projection of the Federal Funds rate to rise to 4.4% by the year’s end and to 4.6% toward the end of next year. That means it would go up from3.4% this year and go from 3.8% next year.

Seema Shah of Principal Global Investors said that the Federal Reserve might be creating a hard landing with the rate calculations. A soft landing would now be out of reach. He said further that the Fed Chairman’s statement that there will be growth below the trends can be taken for the central bank actively seeking a recession.

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