On Thursday, Wall St. stock indices had closed out the session sharply lower, as Nasdaq led the tally of decline with investors jumping on the bandwagon of a profit-taking wave following a three-session-long rally, since remarks from multiple Fed policymakers on rate-hikes and a higher inflation had taken a greater-than-anticipated toll on market participants’ morale.
In the matter of the fact, a higher interest rate is usually seen as a negative impetus for growth stocks such as mega-cap tech shares. On top of that, in the day’s sharp tottering in key Wall Street indices was almost entirely prompted by remarks from a number of Fed policymakers including the most senior, Fed Governor Lael Brainard, who was quoted saying in a prepared remark for a Senate hearing regarding her nomination to become the US Central Bank Vice Chair, “…Inflation is too high, and working people around the country are concerned about how far their pay-checks will go.
Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone. This is our most important task…” Adding further holocaust, Goldman Sachs analysts had forecasted at least four rate hikes this year and some experts had projected the US Fed would require more than a 75bps rate-hike in 2022 to tame a blistering inflation-surge.
Nonetheless, a rate-hike above 75bps this year would significantly increase the risks of a US recession as early as by 2023. Followed by the remarks from Fed’s Brainard, S&P 500’s rate-sensitive growth stocks tumbled as much as 2.7 per cent, while consumer discretionary dwindled over 2.0 per cent.
Wall St. closes sharply lower on concerns over rate-hike bets
Citing statistics, in the day’s Wall St. closing bell, trade-sensitive Dow dropped 0.49 per cent to 36,113.62 and benchmark S&P 500 slumped 1.42 per cent, while Nasdaq was nudged as much as 2.51 per cent lower to 14,806.81.
Meanwhile, addressing to a likely ultra-hawkish Fed in a near future, a Chief Investment Officer for Commonwealth Financial Network, Brad McMillan said, “When Brainard says we've got to do something, they're going do something.
There doesn’t seem to be much debate left within the Fed about what direction they’re going, and not even much about how fast they should get there”.