U.S. stocks fell Wednesday after the Federal Reserve raised its benchmark overnight lending rate for the fourth time in 2018 and said that it would continue to reduce the size of its balance sheet at the current pace.
The central bank also trimmed its outlook for rate hikes in 2019, though not by as much as some market participants had hoped.
The Dow Jones Industrial Average fell as much as 100 points amid Fed Chair Jerome Powell’s press conference as investors digested the central bank’s plan. The broad S&P 500 index fell 0.3 percent as technology and discretionary stocks underperformed. The technology-heavy Nasdaq Composite fell 0.6 percent amid Powell’s comments.
The Fed decided to hike its benchmark overnight lending rate by one quarter point on Wednesday to a target range between 2.25 to 2.5 percent. However, officials now project two hikes next year, which is a reduction but still ahead of market expectations.
Powell later added in a press conference that the Fed’s balance sheet reduction program proceed as planned.
The central bank permits $50 billion a month to run off the balance sheet, a collection of bonds the central bank bought to stimulate the economy during and after the financial crisis.
“I think that the runoff of the balance sheet has been smooth and has served its purpose,” he said during a news conference. “I don’t see us changing that.”
The Federal Open Market Committee continued to include a statement that more rate hikes would be appropriate, though it did soften its tone.
“The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term,” the statement said.
The word “some” was the only edit to the prior November statement. The statement said it now “judges” rate increases to be appropriate whereas November’s said “expects.”
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“The Fed still sees a solid underpinning for the economy based on the numbers and still sees the viability of two rate hikes next year,” said Quincy Krosby, chief market strategist at Prudential Financial. “The market needs, for the Fed’s statement to prove correct, an unequivocally strong parade of strong economic data for that forecast to hold.”
“That’s been the tug of war in the market,” Krosby added. “The old adage is that the price action — that is the market — gets it before the data. That’s at the core of the debate.”
The benchmark 10-year Treasury note yield hit a fresh low of 2.798 percent, its lowest level since May 30.
Complicating matters further for the central bank, President Donald Trump warned Tuesday that it must tread carefully in order not to “make yet another mistake;” strategists expect the Fed Chair to skirt addressing the president’s comments.
The uptick in U.S. equities came despite a downturn in FedEx stock, which slid more than 10 percent after CEO Richard Smith blamed “bad political choices” for weakness in its overseas business. FedEx lowered its 2019 earnings guidance and reported weakness in its international business, putting the stock on pace for its worst day on Wall Street in more than a decade. The stock is also on track for its worst month since 1978.
“I’ll just conclude by saying most of the issues that we’re dealing with today are induced by bad political choices,” FedEx Chairman and CEO Frederick Smith said in a conference call Tuesday. “I mean, making a bad decision about a new tax, creating a tremendously difficult situation with Brexit, the immigration crisis in Germany, the mercantilism and state-owned enterprise initiatives in China, the tariffs that the United States put in unilaterally. So you just go down the list, and they’re all things that have created macroeconomic slowdowns.”
Social media gaint Facebook also fell sharply on Wednesday. Its stock fell more than 7 percent Wednesday after admitting it allowed other big tech companies to read users’ private messages. The company’s blog post came after a New York Times investigation found that Facebook gave companies including Netflix, Spotify and the Royal Bank of Canada the ability to read, write and delete users’ private messages.
Further, the D.C. Attorney General said it would sue the company over the Cambridge Analytica scandal.
Stocks were also supported Wednesday morning on news of a bipartisan Senate plan to avoid a government shutdown. The Senate will introduce a short-term measure to fund the government Wednesday as lawmakers debate whether to fund President Trump’s border wall.
The so-called continuing resoluation would fund the federal government until early February, Senate Majority Leader Mitch McConnell announced. Congress must pass spending bills by midnight Friday to avoid a partial shutdown.
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Source: cnbc.com | Original Link