US close: Dow loses 500 points after another Fed hike

dl jerome powell federal reserve open market committee virtual press conference 3 november 2021 chair fomc fed jay pd — Fed chair Jerome PowellSharecast / public domain image

Wall Street stocks closed well below the waterline on Wednesday, as investors digested another 75-basis point rate hike from the Federal Reserve, while opening the door to some flexibility in future decisions.

At the close, the Dow Jones Industrial Average was down 1.55% at 32,147.76, as the S&P 500 lost 2.54% to 3,759.69 and the Nasdaq Composite was off 3.36% at 10,524.80.

The Dow closed 505.44 points lower on Wednesday, significantly extending the losses it recorded on Tuesday.

“Despite this being the fourth consecutive 75-basis point hike, investors had already priced in the slowdown of the aggressive monetary policies,” said ADSS head of strategy and trading services, Srijan Katyal.

“However, looking at recent hikes and price reactions, some muted price movements may be seen.

“Investors and traders will need to keep an eye on the further economic and jobs market data in the coming months to take a view on whether this slower pace of rate hikes will come to fruition.”

Policymakers at the Fed unanimously nodded through their fourth consecutive outsized rate hike late in the day, adding 75 basis points to its interest rate target.

That took it to a range of 3.75% and 4% - the highest Federal Reserve target in 15 years.

The central bank did, however, indicate that it would monitor any possible economic damage the rate rises could have in what it termed a “lag”.

Chair Jerome Powell said it was still “very premature” to discuss a pause in rate hikes, but said given there were often long lags for the effects of monetary policy changes to be seen, the Fed might not wait for inflation to normalise completely before pausing its tightening.

“A new sentence in the statement explicitly indicated that when calibrating the pace of future rate increases, the Fed will be mindful of the ‘cumulative tightening of monetary policy’ and acknowledge the long and variable lags with which monetary policy affects the economy and inflation,” said Mickey Levy at Berenberg.

“That this was explicitly included in the policy statement, and not left to chair Powell’s press conference, is indicative of the growing number of Fed members, including vice-chair Lael Brainard, who in recent weeks have indicated they feel the balance of risks around the economic outlook has become more two-sided as rates have moved up.

“During his press conference, chair Powell suggested it could be appropriate to slow the pace of rate hikes as soon as the December or January-February meetings, but stressed the Fed will remain data dependent.”

On the economic front, US mortgage applications dipped 0.5% on a seasonally-adjusted basis in the week ended 28 October - a sixth consecutive weekly decline.

According to the Mortgage Bankers Association of America, the purchase index fell 0.8%, while the refinancing index increased by 0.2%.

Elsewhere, US companies added 239,000 jobs in October, according to ADP, beating estimates for a print of 195,000 and September's downwardly revised 192,000 reading.

Wages rose 7.7% year-on-year, down 0.1% month-on-month.

In equities, Estee Lauder Companies closed down 8.13% after the cosmetics conglomerate lowered its full-year guidance.

Casino operator Caesars Entertainment was off 0.7%, despite beating estimates on both the top and bottom lines.

Ford Motor lost 2.54% after it reported a 10% drop in sales during October as a result of ongoing supply chain issues, while media group Paramount Global tumbled 12.42% after it missed top and bottom line expectations for the third quarter.

On the upside, Match Group was ahead 4.19% after the operator of dating platforms including Tinder and Hinge beat quarterly revenue expectations.

Pharmacy chain CVS Health was 2.3% higher after it blasted past third-quarter earnings estimates and announced a $5bn opioid claims settlement, while Boeing Company added 2.81% after its chief executive said it could be generating an annual $10bn in cash by the middle of the decade.

Reporting by Josh White for Sharecast.com. Additional reporting by Iain Gilbert.

Dow Jones - Risers

Boeing Co. (BA) $147.41 2.81%
Verizon Communications Inc. (VZ) $37.71 0.91%
Goldman Sachs Group Inc. (GS) $349.79 0.35%
Dowdupont Inc. (DWDP) $0.00 0.00%
Honeywell International Inc. (HON) $0.00 0.00%
Dow Chemical Co. (DOW) $46.93 0.00%
Travelers Company Inc. (TRV) $182.31 -0.26%
Merck & Co. Inc. (MRK) $99.40 -0.36%
Walmart Inc. (WMT) $140.75 -0.66%
Unitedhealth Group Inc. (UNH) $543.43 -0.71%