Fed infuses more pain into equity markets – Stock Market News

Major US equity indices slumped on Wednesday in the aftermath of the latest FOMC policy meeting, in which the Fed hiked its base interest rate by 75 basis points in line with market expectations and reiterated its commitment to get inflation under control. What attracted investors’ focus though was the Fed’s updated dot-plot as it now signals a more aggressive hiking pace and a higher terminal rate than the markets were projecting. What does that mean for stocks?

No Fed pivot but maybe a pause

On Wednesday, the Fed proceeded with the widely expected third consecutive 75bps rate hike and provided insightful statements on its future policy moves. Specifically, the central bank revealed the updated version of its dot plotwhich essentially indicates where interest rates might be in the coming years according to its members' projections. The latest version depicted the benchmark rate rising to 4.4% by year-end before peaking and staying at 4.6% till the end of 2023.

These interest rate levels are far above what markets were anticipating before the event, delivering a huge blow to investor sentiment and inflicting severe damage on risky assets. What’s more, the new dot plot does not entail a rate cut in 2023, hinting that tight monetary conditions could stick around for longer than expected. Therefore, persistently high interest rates will most likely weigh on stocks, especially on tech stocks as their discounted cash flows will remain under significant pressure.

Stock markets wobble as yields spike

Another notable development of the latest FOMC meeting was that for the first time Jerome Powell acknowledged that the possibilities of a soft landing are diminishing as a prolonged period of high interest rates could ease conditions in the jobs market and dip economic growth below acceptable levels. Therefore, considering that price stability remains the top priority, the Fed appears ready to cause significant collateral damage, even a recession, in the process of getting inflation under control. In such a scenario, the consequences for the stock market will be devastating.

Following those statements, the US Treasury yields spiked higher with the policy sensitive two-year note hovering at 15-year high levels around 4.13%, while the inversion between the two- and 10-year Treasury yields reached the deepest level in four decades.

Strengthening dollar presents an additional threat

In addition, apart from hurting valuations and making borrowing to fund new investments unattractive, elevated interest rates are likely to extend the dollar’s outperformance. The US dollar index has spiked to fresh 20-year high levels, benefiting both from surging Treasury yields and safe haven flows. This trend will probably deteriorate US firms’ fundamentals, with exports becoming less competitive, weighing on sales in foreign markets.

Moreover, an extended period of tight economic conditions will most likely curtail domestic demand, adding more problems to the US firms’ weakening financial performance, which in turn might translate to drops in share prices.

Where could the Nasdaq bottom?

Nasdaq is a tech-heavy index, thus its performance is more sensitive to interest rate fluctuations relative to the other major US indices. Taking a technical look, we can see that the index has been trading deep into bear territory, but the latest developments could send it even lower.

Therefore, for traders who are seeking the next potential support region, the 200-week simple moving average, currently at 11,160 might be a good choice. Even lower, the index could encounter strong support around the 10,590 region, which is the 61.80% Fibonacci retracement of the 6,779-16,759 upleg , extending from the pandemic lows until the all-time high.

免責聲明: XM Group提供線上交易平台的登入和執行服務,允許個人查看和/或使用網站所提供的內容,但不進行任何更改或擴展其服務和訪問權限,並受以下條款與條例約束:(i)條款與條例;(ii)風險提示;(iii)完全免責聲明。網站內部所提供的所有資訊,僅限於一般資訊用途。請注意,我們所有的線上交易平台內容並不構成,也不被視為進入金融市場交易的邀約或邀請 。金融市場交易會對您的投資帶來重大風險。


本網站的所有XM和第三方所提供的内容,包括意見、新聞、研究、分析、價格其他資訊和第三方網站鏈接,皆爲‘按原狀’,並作爲一般市場評論所提供,而非投資建議。請理解和接受,所有被歸類為投資研究範圍的相關内容,並非爲了促進投資研究獨立性,而根據法律要求所編寫,而是被視爲符合營銷傳播相關法律與法規所編寫的内容。請確保您已詳讀並完全理解我們的非獨立投資研究提示和風險提示資訊,相關詳情請點擊 這裡查看。

我們運用 cookies 提供您最佳之網頁使用經驗。更改您的cookie 設定跟詳情。