The U.S. stock market closed lower for the second consecutive day on Thursday amid fears over more aggressive rate hikes by the Federal Reserve.
The Dow Jones concluded Thursday at 30,333.59, slipping 0.3 percent or 90.22 points. The S&P 500 came down to 3,665.78, losing 0.8 percent or 29.38 points, and the Nasdaq Composite closed at 10,614.84, falling 0.61 percent or 65.66 points.
Stocks saw gains at the beginning of the trading day after several IT companies published strong quarterly earnings reports. IBM gained 4.73 percent early in the season, beating its Q3 earnings projection. AT&T also rose 7.72 percent after the company raised its estimation of yearly profit. S&P 500’s estimated Q3 earnings also increased to 3.1 percent, against an earlier prediction of 2.8 percent.
The market went south, however, following weekly labor market reports and comments from Philadelphia Fed president Patrick Harker. According to Harker, the Fed has not concluded its consecutive rate hikes, especially with the 10-year Treasury yield hitting 4.239 percent.
Horizon Investments chief of portfolio management Zachary Hill said that the Fed’s tight policy drove volatility in the equity market. He added that the equity market would “calm down” if the Fed eased up with its volatile interest rate hikes.
"I’m not sure we are going to be able to see that pause that a few Fed members have been pointing to and certainly a few market participants have been kind of latching on to," Hill added.
Greenlight Capital hedge fund manager David Einhorn warned investors that inflation would likely continue its upward trend while the stock market remained bearish. Einhorn argued that the Fed focused on making people, including investors, less wealthy instead of working on a sound fiscal policy.
The newly released Leading Economic Indicators of the U.S. showed that the likelihood of a recession before the end of 2022 had increased. The gauge saw a monthly decline of 0.4 percent in September and fell 2.6 percent in a six-month span. This index measures several metrics, including stock market indices, building permits, credit spreads and unemployment claims.
Analysts have warned that the Fed’s current move to combat inflation may not be the right strategy. SMBC Capital Markets economist Joseph LaVorgna said the Fed aggressively raised interest rates without much consideration.
“When this basket is signaling the weakness that it’s showing, what the Fed typically does is not raise rates,” LaVorgna said. “But in this case, it’s not only raising rates aggressively but with a commitment to continue raising rates aggressively.”
LaVorgna argued that maintaining a tight policy would lead to a “worse” situation in the future. The former White House advisor said that the economy had yet to feel the comprehensive effects of the Fed’s policy, and the impacts would be more profound as the central bank chose to continue its current approach.
The year-to-year consumer price index (CPI) was 8.5 percent in September. With a rate of 7.4 percent, services inflation contributed the most to the increase, indicating that the post-pandemic economy had begun the transition from high goods demand to high service demand.