The S&P 500 ended lower on Wednesday, taking an abrupt nosedive that reversed earlier solid gains after the U.S. Federal Reserve released its statement at the conclusion of its two-day policy meeting.
All three major U.S. stock indexes gyrated wildly in the final minutes of a session that ended with the Dow joining the S&P 500 in negative territory and the Nasdaq and TSX eking out a nominal gain.
The indexes enjoyed a brief surge after the Federal Open Markets Committee left key interest rates near zero. But those gains quickly evaporated as the Fed statement warned it would soon begin raising the Fed Funds target rate to combat persistent inflation related to the COVID-hobbled supply chain.
“With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” the statement said.
Stocks slid into negative territory once Fed Chairman Jerome Powell’s subsequent Q&A got under way, during which he warned that inflation remains above its long-run goal and supply problems are bigger and more long-lasting than previously thought.
“When reporters asked Powell if the Fed would consider raising rates at every meeting, which would mean more than four times this year, he didn’t say they wouldn’t, which indicates a flexibility to raise rates much more quickly (if necessary) than anyone was expecting,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
The Toronto Stock Exchange’s S&P/TSX composite index edged up 4.91 points, or 0.02%, to 20,595.89 but that closing level was 1.6% below its intraday high.
“The story of the day has been the huge intraday swings around the Bank of Canada and, more importantly for the U.S. markets, around the Fed,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
The Bank of Canada said it will soon start hiking interest rates from record lows to combat inflation, while the Federal Reserve signaled it is likely to hike in March.
“Anybody that was holding out that maybe they’ll delay, it’s pretty clear they’re not going to delay,” Cieszynski said.
On the Toronto market, heavily weighted financials rose 0.4%, while the energy sector ended 0.3% higher as oil prices climbed.
U.S. crude oil futures settled 2% higher at US$87.35 a barrel as rising political tensions between Russia and Ukraine added to concerns about further disruption in an already tight oil market.
Weighing on the TSX was the materials group, which includes precious and base metals miners and fertilizer companies. It lost 1.2% as the Fed’s hawkish stance pressured gold.
The Dow Jones Industrial Average fell 129.64 points, or 0.38%, to 34,168.09, the S&P 500 lost 6.52 points, or 0.15%, to 4,349.93 and the Nasdaq Composite added 2.82 points, or 0.02%, to 13,542.12.
While all 11 major sectors of the S&P 500 spent much of the trading day green, by the time the dust settled only tech and financials showed gains.
Fourth-quarter reporting season has hit full stride, with one-fifth of the companies in the S&P 500 having posted results. Of those, 81% have beaten consensus, according to Refinitiv data.
Microsoft Corp gained 2.8% after current-quarter revenue guidance, driven in part by its cloud business, came in above consensus.
Boeing Co was down 4.8% after the plane maker said it incurred $4.5 billion in charges in the fourth quarter related to its sidelined 787.
Toy maker Mattel Inc jumped 4.3% after regaining the right from rival Hasbro Inc to produce toys based on Walt Disney Co’s “Frozen” franchise.
Shares of Tesla fell about 5% in extended trade after the electric vehicle maker warned that its factories would run below capacity through 2022 due to supply-chain limitations.
Declining issues outnumbered advancing ones on the NYSE by a 2.12-to-1 ratio; on Nasdaq, a 1.98-to-1 ratio favored decliners.
The S&P 500 posted 12 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 28 new highs and 206 new lows.
Volume on U.S. exchanges was 14.50 billion shares, compared with the 11.58 billion average over the last 20 trading days.
In late afternoon trading, the benchmark U.S. 10-year yield rose 6 basis points to 1.8476%.
Reuters, Globe staff
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