new York Dramatic change of mood on Wall Street. On Wednesday, after the US Federal Reserve (Fed) meeting, the stock markets celebrated their best day since 2020. Panic sales then spread on Thursday. The Dow Jones index of standard values fell 3.2 percent to 32,982 points on Thursday. The broader S&P 500 fell 3.6 percent to 4,146 points. The Nasdaq technology exchange index lost 5.1 percent to 12,319 points by the close of trading in New York.
It was the worst day this year. Cryptocurrencies were also affected by the bad mood. Bitcoin, the largest and oldest digital currency, lost eleven percent on Thursday and cost a good 35,600 dollars. It was the biggest price drop since January, although just a few months ago, some investors praised Bitcoin as a good protection against rising inflation.
Fed Chair Jerome Powell caused confusion on Wednesday with contradictory signals. As expected, the central bank had raised interest rates by 50 basis points in the fight against inflation. However, Powell specifically ruled out a 75 basis point rate hike in an upcoming meeting, easing investor fears of aggressive monetary tightening.
That had triggered a price rally on Wednesday, but it was short-lived. Many investors seemed to realize on Thursday that the Fed doesn’t have good options to choose from.
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Despite Powell’s softer signals, “we should not be blinded. We believe the Fed is at the beginning of a period of significant rate hikes,” said Win Thin, strategist at private bank Brown Brothers Harriman. That will increase the pressure on stocks and tech stocks in particular. It has lost around 24 percent from its recent all-time high in November.
US bond rates rise
The consequences of the Fed’s decision were directly noticeable on Thursday. Interest rates for 30-year mortgages rose to 5.27 percent, the highest level since August 2009. According to economists, this will put pressure on the booming housing market and at the same time allow rents to continue to rise because fewer and fewer Americans can afford a house be able.
Ten-year government bond yields continued to rise after a pause. In the past, such phases of interest rate hikes have often led to recessions because the central bankers have cooled the economy too much.
At the same time, however, there was also the opposite concern in the market: if Powell is not tough enough to fight inflation, the US could face a period of stagflation. Former Fed Vice Richard Clarida reinforced those fears on Thursday.
Getting interest rates as quickly as possible to a neutral level, where the economy neither shrinks nor grows, “will not be enough to bring inflation back to the target of 2 percent,” according to a pre-release manuscript of a speech that Clarida will hold on Friday. This neutral interest rate is seen at around 2.5 percent.
The Fed raised interest rates to the 0.75 to 1 percent range on Thursday. Clarida, on the other hand, considers a level of at least 3.5 percent necessary. This statement is “particularly interesting when you consider that Clarida had a very close relationship with Powell during his time as deputy,” said economist Mohamed El-Erian, who advises Allianz among other things.
Investors also have to process a flood of company balance sheets. A disappointing outlook caused Etsy’s biggest share price drop in nine months. The shares of the online marketplace specializing in handicrafts slipped by more than 15 percent.
A quarterly result above market expectations and the prospect of bubbling profits, on the other hand, gave the lithium producer Albemarle one of the biggest price jumps in the company’s history. Shares in the global industry heavyweight rose 4.8 percent.
In the US, initial jobless claims rose surprisingly last week. The number rose by 19,000 to 200,000, the Ministry of Labor said on Thursday. Experts had expected an average of 180,000 applications. Despite the increase, the level of aid applications remains low in a longer-term comparison. The weekly initial applications are considered a short-term indicator for the development of the labor market.
Individual values in focus
Seaworld: The theme park operator’s stock fell 9.2 percent, even though the company reported a smaller-than-expected quarterly loss. Revenue also beat estimates as attendance was above pre-pandemic levels.
Twitter: Twitter is up 3.5 percent. Tesla boss Elon Musk is making progress with the financing of the planned takeover of the short message service, which will cost a total of 44 billion dollars. According to the information, he received a guarantee of 7.14 billion dollars from a group of investors. US Securities and Exchange Commission documents show that Oracle co-founder Larry Ellison and investor Ron Baron are among the investors.
Shopify: The company’s adjusted quarterly earnings came in at 20 cents a share well below the consensus estimate of 64 cents. Shopify stock plummets 17.5 percent. The e-commerce platform also issued a cautious outlook.
Booking Holdings: The stock is up around four percent. The company reported better-than-expected quarterly profit and sales. The reason was an increased demand for travel services. The parent company of Priceline and other services earned an adjusted $3.90 per share, well above the consensus estimate of 90 cents.
eBay: Ebay shares fell 9.4 percent on a weaker-than-expected sales forecast. The e-commerce company beat both earnings and revenue forecasts for the past quarter. Inflation and a return to pre-pandemic shopping habits are among the factors weighing on forecasts for Ebay and other e-commerce companies.
Sunrun: The stock climbed 0.4 percent. The solar company’s sales came in well above expectations, despite a larger quarterly loss. According to the company, there have been “reasonable” price increases to offset the higher costs. Demand for solar systems remained strong.
With agency material.
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