Renewed Concerns Over Fed Interest Rate Policy Causes S&P 500 and Nasdaq Composite to Fall
On Thursday, the S&P 500 and Nasdaq Composite experienced declines as worries resurfaced on Wall Street regarding the Federal Reserve’s interest rate policy path. Investors are concerned about whether policymakers will enact another interest rate hike this year.
The tech-heavy Nasdaq fell for a fourth consecutive day, losing more than 1.2%, while the broad-based S&P slid 0.5%. On the other hand, the Dow Jones Industrial Average remained relatively stable.
One factor contributing to the market downturn was a Bloomberg News report stating that China is considering expanding its ban on the use of iPhones in state-owned companies and agencies. This news caused Apple shares to drop 3.3%. Additionally, technology and semiconductor stocks, including Tesla, Nvidia, and Advanced Micro Devices, experienced losses of about 3% each.
Another catalyst for the market decline was a series of economic data points released on Thursday, which sparked concerns about the Federal Reserve’s monetary policy stance. Despite fewer-than-expected jobless claims, the strong labor market has raised worries that the Federal Reserve may reconsider its plan to relax its tight monetary policy stance. Weekly jobless claims came in at 216,000, below the expected 230,000. Moreover, second-quarter labor costs rose more than anticipated.
The recent increase in energy prices, combined with a robust job market, strengthens the argument for the Federal Reserve to implement further rate hikes. Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, stated, “People were hoping the Fed would be on hold for the rest of the year, but it’s possible that we got one or two more rate hikes to come. All things being equal, that’s a little bit of a negative for the stock market, which was expecting the Fed to potentially be done for the year.”
Traders also analyzed the latest corporate earnings reports. C3.ai saw a 16% decline after reporting lower-than-expected gross margin in the recent quarter. ChargePoint Holdings also experienced a dip of over 24% after missing revenue estimates.
This decline in the major U.S. stock benchmarks follows a losing session on Wednesday, during which higher Treasury yields weighed on tech stocks, and investor concerns were magnified regarding the Federal Reserve’s potential use of recent robust economic data to justify additional interest rate hikes.
While 93% of interest rate traders do not anticipate any changes at September’s Federal Open Market Committee meeting, expectations of an additional interest rate hike at the November meeting have risen to 45%, according to the CME FedWatch tool.