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A trader reacts as a screen shows the Fed’s rate announcement on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., on December 13, 2023.
Brendan Mcdermid | Reuters
Stocks fell on Wednesday after Federal Reserve Chair Jerome Powell said the central bank probably wouldn’t be ready to cut rates in March.
The Dow Jones Industrial Average fell 245 points, or 0.6%. The S&P 500 fell 1.4%, with tech stocks like Alphabet and AMD the biggest losers. The Nasdaq Composite lost 1.8%.
It was a volatile session as the Federal Reserve kept rates unchanged and said it was not yet ready to start cutting them.
“The Committee does not expect it to be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2 percent,” the new statement read.
Still, the central bank did something that traders wanted, which is to remove the part of the statement that indicated that the central bank still had a restrictive bias. The Federal Reserve removed a phrase that referred to “further tightening of policy.”
“We believe that our policy rate is probably at its peak for this tightening cycle and that if the economy evolves broadly as expected, it will probably be appropriate to begin reducing the policy tightening at some point this year,” said the president of the Federal Reserve, Jerome Powell. during the conference.
But the head of the Federal Reserve said the central bank needs to see more good data on inflation before doing so.
Treasury yields fell the day following the Federal Reserve’s actions, and the 10-year Treasury yield surpassed 4%.
Alphabet and Microsoft
Alphabet shares fell more than 6% and were on track for their worst day since Oct. 25 as disappointing advertising revenue overshadowed better-than-expected earnings and sales. Shares of peer technology companies Microsoft and AMD fell 1.5% and 1.8%, respectively, on lower-than-expected forward guidance after releasing quarterly results.
The technology sector, which has fueled the market’s rally from 2023 to 2024, is now trading at a relatively high valuation of nearly 29 times its 2024 earnings, according to Sam Stovall, chief investment strategist at CFRA Research. With this in mind, investors will need to see earnings expansion for technology companies to maintain their high price-to-book ratio levels, the strategist said.
“Even when you get better-than-expected results, people may be selling because they just want to take the money and run,” he said. Alphabet’s pullback, despite its largely positive results, may be more of a short-term, “buy on rumors, sell on news” trend, she added.
“It’s not that investors are willing to pay up and have a multiple expansion later, but now is the time to put up or shut up,” Stovall said. “It’s time to grow earnings to justify these higher valuations.”
Boeing shares rose nearly 6% after quarterly results beat analyst estimates for revenue and profits. The company has been hit by recent issues related to its 737 Max 9, forcing Boeing to focus on safety going forward, Boeing CEO Dave Calhoun said.