The S&P 500 sustained its fourth day of losses following suggestions that the Fed could keep battling inflation aggressively.
The S&P 500 recorded losses on the day following Fed minutes, suggesting a sustained hawkish stance on inflation. Several stocks closed lower as traders and market analysts analyzed the summary of the central bank’s latest meeting.
S&P 500 Losses Continue Following Fed Inflation Stance
The S&P 500 slipped 0.16% to close at 3,991.05 but was not the only leading index to record losses on the day. The Dow Jones Industrial Average (DJIA) also shed 0.26%, or 84.50 points, to close at 33,045.09. However, the tech-heavy Nasdaq Composite gained 0.13% on the day to close at 11,507.07.
On Tuesday, stocks suffered their worst day of 2023 following mounting concerns that the Fed could continue hiking rates. For instance, the Dow closed approximately 700 points in a broad selloff, dropping 2.06%, or 697.10 points, to 33,129.59. Meanwhile, the S&P suffered even bigger losses than its recent reaction to the Fed minutes development regarding inflation. On Tuesday, the S&P plunged 2.00% to close at 3,997.34, marking its worst day since December 15th when it slid 2.5%.
Two days ago, even the Nasdaq Composite suffered a substantial 2.50% drawdown to end the day at 11,492.30.
Unrelenting Inflationary Optics
The Fed’s recent fiscal meeting summary suggested that inflation was still well above the bank’s 2% target. Furthermore, the apex bank ascertained that the labor market remained very tight and impacted wages and prices. As a result, the Fed minutes, which showed that participating members resolved to continue combating inflation with rate hikes, read:
“The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way.”
The Federal Open Market Committee also admitted that inflation could be on the decline but suggested that there were still concerns. The minutes read:
“Participants noted that inflation data received over the past three months showed a welcome reduction in the monthly pace of price increases but stressed that substantially more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path.”
Minutes Trail St. Louis Fed President Cautionary Statement
The release of the Fed’s minutes came on the heels of an earlier cautionary statement by St. Louis Fed President James Bullard. Earlier Wednesday, Bullard warned that the Federal Reserve still had some way to go in its fight against inflation. He also advocated for faster, more aggressive rate hikes to rein in inflation without risking a recession. “Let’s be sharp now; let’s get inflation under control in 2023,” Bullard said.
According to LPL Financial’s chief global strategist Quincy Krosby, the release of the Fed minutes does not affect market trajectory. The reason is that investors resolutely believe that the apex bank’s ongoing rate hikes will soon taper off. In Krosby’s opinion, the Fed would not continue much further regarding rate hikes, and investors are more concerned about other issues. Krosby says investors are more worried about margin earnings, margin pressure, and margin compression.
next