Wall Street experienced a significant decline on Thursday due to concerns that the Federal Reserve’s monetary policy will remain restrictive for a longer period than expected. All three major U.S. stock indexes fell by more than 1%, and U.S. Treasury yields reached a 10-year high following Fed Chairman Jerome Powell’s warning about inflation. Interest rate-sensitive megacaps, including Amazon.com, Nvidia Corp, Apple Inc, and Alphabet Inc, dragged down the S&P 500 and Nasdaq to their lowest levels since June.
The Federal Reserve left the Fed funds target rate unchanged at 5.25%-5.50% as expected, but revised economic projections indicated that interest rates will remain elevated through next year. This dampened hopes for a policy easing before 2025. Thomas Martin, Senior Portfolio Manager at GLOBALT, expressed concerns about the impact of higher rates on the economy and the potential for a lack of a soft landing.
An unexpected 9% drop in initial U.S. jobless claims, reaching the lowest level in eight months, supported the Fed’s belief that the labor market is tight and the economy can withstand higher rates. The phrase “higher for longer” has become a common credo among the central banks of major economies as they tighten policies to combat inflation.
The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all experienced significant declines. All 11 major sectors of the S&P 500 also suffered losses, with real estate stocks experiencing their largest one-day percentage drop since March. Semiconductor firm Broadcom slid following a report that Google executives discussed replacing the company as a supplier of AI chips. The Philadelphia chip index also declined.
FedEx, on the other hand, saw a 4.5% increase in its shares after delivering a better-than-expected profit. Fox Corp and News Corp experienced gains following the news of Rupert Murdoch stepping aside as chairman.
Declining issues outnumbered advancing ones on the NYSE, and the S&P 500 and Nasdaq Composite recorded new highs and lows. The volume on U.S. exchanges was higher than the average for the last 20 trading days.
Overall, Wall Street’s sell-off was driven by concerns about the Federal Reserve’s monetary policy and its potential impact on the economy. The unexpected drop in jobless claims provided some support, but the market remained cautious.
