Another hawkish signal from the Federal Reserve prompted late-day selling on Wall Street, with the Dow and S&P 500 eventually finishing Wednesday’s session in the red. The retreat added to a substantial decline recorded during the previous session. The Nasdaq showed weakness into the final stages of the session but scrambled above the flat line just before the close.
The Nasdaq Composite (COMP.IND) finished +0.1%, the S&P 500 (SP500) ended -0.2% and the Dow (DJI) closed -0.3%.
Adding to a nearly 700-point drop the day before, the Dow Jones slipped 84.50 points to end at 33,045.09. The S&P 500 edged down 6.29 points to 3,991.05. The Nasdaq showed late weakness but managed to end with a gain of 14.77 points, finishing the day at 11,507.07.
Nine of the 11 S&P sectors posted losses, although only Real Estate fell more than 1%. Energy, Health Care and Utilities were among the segments ending modestly lower. Materials and Consumer Discretionary posted modest gains, while Info Tech and Communication Services ended just below the unchanged mark.
Shares dropped on Tuesday amid weak predictions from a couple of major retailers and ongoing concerns about interest rates. The Fed worries flared up again during Wednesday’s trading, following the release of the minutes of the last central bank meeting, which ended with a rate hike of 25 basis points.
The minutes showed that some Fed officials favored raising the key rate by 50 basis points, suggesting ongoing concerns about inflation. The info also indicated that policymakers could return to a more aggressive approach if necessary to tame price increases.
“Despite concurring that the FOMC made significant progress in the fight against inflation over the past year, it also became clear that inflation remains above what the bank system is comfortable with and that, as a result, we should anticipate more interest rate hikes moving forward,” analyst Daniel Jones told Seeking Alpha.
Jones added: “Higher interest rates from what we have seen so far will only serve to weigh on the economy further. Having said that, the fact that they are likely to go up slower than what others might have anticipated means that most of the pain may already be factored in.”
Looking at the market implications of Fed policy, Jones argued that “the best opportunities moving forward will be value-oriented stocks that would normally be harmed by higher interest rates and higher inflation” because “many of these have been held down lower than what they should have been.”
Going into the February rate announcement, many experts had hoped the Fed would soon be finished with its rate-hiking cycle. However, this expectation has dissipated in recent weeks, with a growing worry that the central bank will be forced to step up its rate hikes again at its March meeting.
In the bond market, the 10-year Treasury yield (US10Y) fell 3 basis points to 3.93%. Meanwhile, the 2-year yield (US2Y) dipped about a basis point to 4.70%.
Looking at corporate news, Palo Alto Networks (PANW) posted a double-digit percentage gain after reporting better-than-expected quarterly results.