US stocks tumbled Thursday as Wall Street reeled from another sizeable rate hike by Federal Reserve officials and assessed similar moves by policymakers across the Atlantic. Disappointing consumer spending figures also raised concerns about the health of the US economy.
The European Central Bank and Bank of England followed the US Federal Reserve and hiked rates by 50 basis points on Thursday morning. The BoE’s hike pushed interest rates in the country to their highest level since 2008. Evidence from all banks that more tightening is underway offset optimism about peak inflation.
The S&P 500 (^GSPC) slipped 2.5%, while the Dow Jones Industrial Average (^DJI) shed more than 750 points, or 2.3%, for its worst day in three months. The tech-heavy Nasdaq Composite (^IXIC) fell 3.2%.
US Treasury yields fell slightly, with the benchmark 10-year bond falling below 3.5%. The US dollar index rose and oil prices slid, with West Texes Intermediate (WTI) crude oil futures trading around $76 a barrel.
European Central Bank President Christine Lagarde echoed an aggressive tune by Fed Chair Jerome Powell after the monetary authority’s rate decision.
“Anyone who thinks this is a linchpin for the ECB is wrong,” Lagarde said in a news conference. “We should expect to hike interest rates by 50 basis points for a period of time.”
“We’ve got more ground to cover, we’ve got longer to go and we’ve got a long game ahead of us,” she said.
Meanwhile, the US government’s retail sales report showed spending fell sharply in November as the important holiday shopping season kicked off. The latest retail sales showed a 0.6% month-on-month decline but a 6.5% increase from the same period last year.
“Black Friday and holiday shopping wasn’t enough to save retail sales last month as they fell the most this year and fell well below expectations,” said Mike Loewengart, Morgan Stanley’s head of model portfolio construction, in a note.
The story goes on
“The consumer has been resilient despite hot inflation and rising interest rates, but high prices and talk of a recession may have some reaching for their wallets now,” he added. “It’s been a busy week for investors as both the Fed and ECB hiked rates, so it shouldn’t come as a surprise to see a shaky market.”
While a slowdown in retail spending showed signs of economic weakness, another economic release early Thursday underscored ongoing tightness in the job market. Jobless claims unexpectedly fell to their lowest level since September last week. Initial jobless claims, the most recent snapshot of US jobs, came in at 211,000 for the week ended December 10, down 11,000 from the revised level of the previous week, according to Labor Department data.
On the corporate front, shares of Tesla (TSLA) stabilized Thursday after falling all week, despite a regulatory filing showing CEO Elon Musk bought about 21,995,000 shares of the company’s stock in the three days ended Dec. 14, or Tesla shares are down about 20% so far in December and about 55% year-to-date after the electric-vehicle giant’s sell-off accelerated in recent days.
Shares of Lennar (LEN) also turned higher from earlier losses after the homebuilder’s earnings late Wednesday showed an 11% rise in fourth-quarter earnings. Lennar closed up 3.8%.
Thursday morning’s moves follow declines above key averages in the previous trading session after the Fed hiked its benchmark interest rate by 50 basis points. Powell also stressed that he and his colleagues will continue to hike rates in 2023 to an upwardly revised projected final rate of 5.1%.
Wednesday’s half a percentage point hike, which brought the Fed’s interest rate range to a 4.25% to 4.5% range, marked a slowdown from the 75 basis point hikes at each of the Fed’s last four policy meetings — the most aggressive Route of hikes since the 1980s.
Despite a slowdown in the pace and magnitude of the hikes, Powell kept emphasizing that the work he and his colleagues did to combat stubbornly high inflation was far from over.
Jerome Powell, Chairman of the Federal Reserve Board, delivers a news conference following the announcement that the Federal Reserve has raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, the United States, December 14, 2022. REUTERS/Evelyn Hockstein
“Now that we’ve hiked rates by 425 basis points this year and we’re in hawkish territory, how fast we move isn’t as important now – it’s far more important to think about what the ultimate is.” level?” Powell said in a news conference with reporters on Wednesday. “At a certain point, the question will be: how long do we remain restrictive?”
The Fed’s “dot plot,” which shows policymakers’ estimates for interest rates, showed expectations for the federal funds rate to rise to between 5.1% and 5.4% in 2023 and still at a median of 4.1% up from a previous estimate will be 3.9% – a change strategists are pointing out is the biggest surprise revision to the central bank’s outlook.
“These estimates are significantly more restrictive than their previous forecasts and have not been revised far in advance, as is usually the case with the Fed,” William Blair’s macro analyst Richard de Chazal said in a note.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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