S&P 500 notches fourth day of losses as investors weigh Fed minutes, need for higher rates to cool inflation

S&P 500 notches fourth day of losses as investors weigh Fed minutes, need for higher rates to cool inflation

U.S. stocks finished mostly lower on Wednesday, with the S&P 500 logging its fourth consecutive loss as investors digested the minutes from the Federal Reserve’s most recent policy meeting, which showed a majority of central bank officials agreed on a 25-basis-point rate hike and underlined expectations for rates to continue to rise.

How stock indexes traded
  • The Dow Jones Industrial Average DJIA, -0.26% was down 84.50 points, or 0.3%, to end at 33,045.09.
  • S&P 500 SPX, -0.16% dropped 6.29 points, or 0.2%, to finish at 3,991.05.
  • The Nasdaq COMP, +0.13% gained 14.77 points, or 0.1%, ending at 11,507.07.

On Tuesday, the Dow fell nearly 700 points, or 2.1%, while the S&P 500 declined 2% and the Nasdaq Composite dropped 2.5%, making it the worst day of 2023 so far for all three major indexes.

What drove markets

U.S. stocks ended mostly lower Wednesday as investors weighed the minutes of the Fed’s Jan. 31-Feb. 1 policy meeting.

In their discussion, “almost all participants” agreed that it was appropriate to raise the fed-funds rate by 25 basis points, or quarter of a percentage point, to a target range of 4.5% to 4.75%, with a few stating that they favored a 50 basis point move.

Meanwhile, a “number” of Fed officials noted that financial conditions had eased, “which some noted could necessitate a tighter stance of monetary policy.”

The minutes also showed that all Fed officials supported further increases in interest rates, while “a number” of policy makers warned that if the level of interest rates was not high enough to slow the economy, it could halt recent progress in combating inflation and drive price pressures to remain above the Fed’s target of 2% for a prolonged period.

Paul Ashworth, chief North America economist at Capital Economics, noted that the meeting predated the run of incredibly strong economic data which includes January employment and activity data, as well as the upward revisions to the three-month annualized core CPI inflation rates.

The minutes were released after St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester said they had argued for a 50-basis-point hike in the fed-funds rate. Bullard on Wednesday said in a televion interview that he continued to expect a peak fed-funds rate of 5.38%, or a range of 5.25% to 5.5%.

Bullard on Wednesday said he thought markets had previously “overpriced” the risk of recession in the second half of 2022 and the first half of 2023, and the economy is more resilient than many investors have thought.

“The recent revelations that nonvoting participants Loretta Mester and Jim Bullard supported a 50bp hike at that meeting has led to speculation that more officials shared their views but, according to the minutes, only a ‘few’ participants favored the bigger hike – suggesting it was just Bullard, Mester and A.N. Other,” quipped Ashworth, in emailed comments.

“We’re not particularly surprised by that, since if the support for 50bp was widespread among nonvoting participants, we suspect that would have emboldened newfound hawk and voter Neel Kashkari to dissent,” he wrote, referring to the Minneapolis Fed president.

Bullard and Mester are not voting members of the rate-setting Federal Open Market Committee this year.

Fed funds futures traders are now pricing a 73% probability that the Fed will raise interest rates by another quarter-of-a-percentage-point to a range of 4.75% to 5% on March 22, followed by another 25-basis-point move in May. That would bring the terminal rate to a range of 5.25% to 5.5% in July, and remain above 5%-level for the rest of this year, according to CME FedWatch Tool.

Companies in focus
  • Genius Group Ltd. GNS, -0.57%, a Singapore-based education company, finished 0.6% lower after the company said Wednesday it would take legal action against various parties over what it alleged is illegal trading in its shares.
  • Wingstop Inc.’s WING, +7.70% stock soared 7.7% Wednesday, after the operator of aviation-themed chicken-wing restaurants beat estimates for the fourth quarter by a comfortable margin.
  • Intel Corp. INTC, -2.26% shares declined 2.3% after the chip company announced Wednesday that it would cut its dividend. Intel will pay a quarterly dividend of $0.125 a share. The company’s previous quarterly dividend was $0.365 a share.
  • Coinbase Global Inc. COIN, -1.43% shares went down 1.4% after the crypto exchange reported fourth-quarter results that beat estimates and said the crypto market had “improved” so far in the first quarter, but that the rest of the year remains cloudy.

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