Wall Street losses accelerate after Fed says rate cuts are not imminent – WHIO TV 7 and WHIO Radio

NEW YORK — (`) — Technology stocks are tumbling Wednesday as several of Wall Street's most influential stocks feel the downside of extremely high expectations. The market's losses accelerated after the Federal Reserve indicated that the interest rate cuts that investors have been craving are unlikely to happen in March, as many traders had hoped.

The S&P 500 lost 1.3% in shaky afternoon trading, heading for its worst loss in six weeks. The reading fluctuated between a loss of just 0.4% and 1.4% as traders increased bets on when the Fed would cut its key interest rate from its highest level since 2001.

The Dow Jones Industrial Average fell 198 points, or 0.5%, as of 3:06 p.m. Eastern time, while the Nasdaq Composite fell 1.9%.

But the bigger challenge may have been the high expectations the company is grappling with after its stock rose significantly more than the rest of the market last year. Other Big Tech stocks, which also accounted for a disproportionate share of the S&P 500's rise to record highs, also struggled on Wednesday amid high expectations.

Alphabet was one of the market's heaviest weights, falling 7% despite reporting higher earnings and revenue than analysts expected for its latest quarter. Beneath the surface, analysts pointed to some troubling trends in how much Google's parent company makes from advertising.

Microsoft posted a 1.9% decline despite posting higher-than-expected profits and sales. One analyst, Dan Ives of Wedbush Securities, even called its quarterly report “a masterpiece that should be hung in the Louvre.”

Tesla, another member of the group of stocks nicknamed the “Magnificent Seven,” fell 1.4%. A Delaware judge ruled a day earlier that its CEO, Elon Musk, is not entitled to the groundbreaking compensation package awarded to him by Tesla, potentially worth more than $55 billion.

The Magnificent Seven were responsible for the majority of the S&P 500's returns last year, and three other members are expected to report their latest quarterly results on Thursday: Amazon, Apple and Meta Platforms. Expectations are high for them too.

Advanced Micro Devices is not a member of the Magnificent Seven, but it benefits from many of the same trends. It fell 2.3%, although it met analysts' earnings expectations last quarter and slightly beat them on sales. The sales forecast for the coming quarter fell short of analysts' estimates.

Earlier in the day, stocks received some boost from falling bond market yields.

Lower yields can mean less pressure on the economy and financial system while encouraging investors to pay higher prices for stocks. They have generally fallen since the fall as a slowdown in inflation is expected to prompt the Federal Reserve to cut interest rates several times this year.

The Fed left its key interest rate at its highest level since 2001 on Wednesday. Perhaps disappointing for investors, she also made it clear that she “does not expect it will be appropriate to lower the target range until she has gained greater confidence in inflation.” “Sustainably moving toward” its target of 2%.

“We are not declaring victory at all,” said Fed Chairman Jerome Powell. He said it was unlikely Fed officials would reach that level of certainty by their next meeting in March. “That’s probably not the most likely case,” he said.

But Powell also said central bank officials were already confident that day would come. All you need to see is ongoing data confirming that inflation is falling sustainably. “We have confidence,” he said. “It has increased, but we want to gain more trust.”

Powell acknowledged that the Fed is in a difficult position and that acting too quickly or too late poses dangers, even though there is currently an “overall good picture” for the economy. Cutting interest rates too early could reignite inflationary pressures, while acting too late would put unnecessary strain on the economy and the labor market.

Treasury yields in the bond market erased some of their losses from the previous day after the Fed made the statement, forcing traders to abandon some bets that the Fed could start cutting rates as early as March.

“Given the strength of the economy, the Fed likely believes it can opt for a later and slower cut than the market is pricing in,” said Brian Jacobsen, chief economist at Annex Wealth Management. “In March, the Fed may want to cut rates.”

The Fed made clear that it will monitor incoming data reports to ensure inflation falls sustainably toward its target. It could be that a few reports early Wednesday were encouraging.

Growth in wages and benefits for U.S. workers in the final three months of 2023 was slower than economists expected, a report said. While all workers want bigger raises, the cooler-than-expected data could help allay one of the Fed's big fears: that too high wage increases would trigger a vicious cycle that ultimately keeps inflation high.

A separate report from the ADP Research Institute also suggested that hiring by non-government employers in January was weaker than economists expected. The Fed and Wall Street are hoping the labor market will cool just the right amount, enough to keep inflation under control but not so much that it triggers a recession

The yield on the 10-year Treasury note fell to 4.00% from 4.04% late Tuesday.

On overseas stock markets, indices in China fell sharply again as concerns remain about a weak economic recovery and problems for the country's heavily indebted real estate developers.

Elsewhere in Asia and Europe, stocks were mixed.

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` writer Zimo Zhong contributed.