US stocks slide, Treasury yields spike on hawkish Fed outlook

By Stephen Culp

NEW YORK (Reuters) – Wall Street tumbled on Thursday, with investor risk appetite dampened by worries that the Federal Reserve’s monetary policy will remain restrictive for longer.

All three major U.S. stock indexes were sharply lower as benchmark U.S. Treasury yields touched a 10-year peak the day after Fed Chairman Jerome Powell warned inflation still has a long way to go before approaching the central bank’s 2% target.

Interest rate sensitive megacaps, led by Amazon.com (NASDAQ:) and Nvidia Corp (NASDAQ:) weighed the and the Nasdaq down 1% or more.

If current levels hold, the S&P 500 will close at its lowest since late June and the Nasdaq posting its lowest close since mid-August.

“It’s a risk-off day. The market is repricing realistic expectations on what the Fed can and cannot do,” said Megan Horneman, CIO at Verdance Capital Advisors, Hunt Valley Maryland. “There were expectations that the Fed could cut rates in the first half of next year and after yesterday’s meeting that looks unlikely.”

On Wednesday, at the conclusion of its two-day monetary policy meeting, the central bank left the Fed funds target rate unchanged at 5.25%-5.50%, as expected.

But revised economic projections, including the closely watched dot plot, showed interest rates will remain elevated through next year, dampening hopes for a dovish policy pivot before 2025.

An unexpected 9% drop in initial U.S. jobless claims played into the Fed’s notion that the labor market remains too tight, putting upward pressure on wages, and the economy is resilient enough to withstand higher rates for longer.

“Some of today’s economic data, particularly in the job market, has people concerned that the Fed might have to raise rates again in November,” Horneman added.

“Higher for longer” has become a common credo among the central banks of the world’s biggest economies as global policy tightening, in order to tame inflation, reaches its peak.

At 2:11PM ET, the fell 165.47 points, or 0.48%, to 34,275.41, the S&P 500 lost 43.89 points, or 1.00%, to 4,358.31 and the dropped 151.13 points, or 1.12%, to 13,318.00.

All 11 major sectors of the S&P 500 were last in negative territory, with real estate stocks suffering the biggest percentage drop.

Semiconductor firm Broadcom (NASDAQ:) slid 1.7% following a report that Alphabet-owned Google (NASDAQ:)’s executives discussed dropping the company as a supplier of artificial intelligence chips as early as 2027.

The Philadelphia chip index shed 1.0%.

Klaviyo Inc gained 0.2% the day after its debut as a public company, while another recent IPO, Arm Holdings (NASDAQ:) was off 2.9% and threatening to break below its $51 offer price.

Fox Corp and News Corp (NASDAQ:) both gained 3.2% following news that Rupert Murdoch will step aside as chairman.

Declining issues outnumbered advancing ones on the NYSE by a 4.74-to-1 ratio; on Nasdaq, a 2.38-to-1 ratio favored decliners.

The S&P 500 posted 3 new 52-week highs and 25 new lows; the Nasdaq Composite recorded 17 new highs and 333 new lows.