On Thursday, Wall Street plunged for the fourth consecutive trading day as economic data suggested that the Federal Reserve would continue to hike benchmark rates — longer than the initial prediction.
The Dow Jones closed at 32,001.25, losing 146.51 points or 0.46 percent, the S&P 500 ended the trading day at 3,719.89 after losing 39.8 points or 1.06 percent and the Nasdaq Composite concluded Thursday at 10,342.94, slipping 181.86 points or 1.73 percent. On the other hand, the greenback and U.S. bond yields extended their growths.
Companies with the largest market capitalization suffered the most significant loss during the trading day due to rising yields. Apple Inc was down 4.24 percent, and Alphabet Inc lost 4.07 percent. Their losses caused a slump in the entire technology and communication services sectors. Qualcomm Inc and Roku Inc lost 7.66 and 4.57 percent, respectively, after projecting lower growth in Q4.
The industrial sectors were able to moderate the Dow’s loss, with Boeing Co and Caterpillar Inc climbing 6.34 and 2.20 percent, respectively.
Eighty percent of S&P 500 companies have reported their earnings. Based on Refinitiv data, the expected growth rate in Q3 was 4.7 percent, which exceeded the initial prediction at the beginning of October.
Rate hike pause 'very premature'
Fed chairman Jerome Powell addressed the public in a press conference after the November rate-setting meeting. Powell said it was “very premature” to consider a rate hike pause. Recent economic data revealed that the labor market remained strong with high rates of job openings.
The central bank often stresses the importance of softening the labor market. During the press conference, Powell added that he wanted the softening to happen through elevated job vacancies instead of job loss.
Cherry Lane Investments partner Rick Meckler explained that the Fed was facing the challenge of balancing economic slowdown while generating enough earnings to support the financial market.
"It is about the rate of change as much as the change so when the rate of change starts to slow ... that almost becomes a positive even though in absolute terms we are going to continue to see higher rates, and higher rates means more competition for stocks and lower multiples," Meckler added.
Investors are now debating between a 50 or 75 basis points hike for December’s FOMC meeting. Most stakeholders have predicted that the interest rate will peak at around five percent, higher than the previous prediction of the 4.50 to 4.75 percent range.
The Bureau of Labor Statistics will release the nonfarm payrolls report on Friday. This information offers an indication of whether the economy has slowed down.
Recession outlook
A number of economists have claimed that the Fed will not be able to bring down inflation according to the 2 percent target, despite its monetary tightening effort, without raising interest rates too high, resulting in a recession. Jefferies economist Aneta Markowska said the situation would start as a “mild recession” but gradually intensify.
On the other hand, Powell insisted that the U.S. economy was still capable of avoiding recession. He, however, acknowledged that the success margin was slimmer than before.