Stocks Knocked Down as Hawkish Powell Lifts Yields: Markets Wrap

(Bloomberg) — Stocks sold off as Jerome Powell continued to sound unequivocally hawkish as the Federal Reserve pushes ahead with it most-aggressive tightening campaign since the 1980s to thwart inflation.

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In a session of several ups and downs, the S&P 500 moved decidedly lower after the Fed’s boss said the central bank still has “some ways to go” in its policy cycle, adding that it’s very premature to think about pausing hikes as rates could peak at higher levels than previously thought. Equities briefly rose when he said that a slower pace of rate hikes could come as soon as December.

Megacap tech bore the brunt of the selling, with giants like Apple Inc. and Tesla Inc. tumbling more than 3.5%. Two-year US yields — which are more sensitive to imminent Fed moves — reversed course and pushed higher. The dollar gained.

The Federal Open Market Committee said that “ongoing increases” will still likely be needed to bring rates to a level that are “sufficiently restrictive to return inflation to 2% over time,” in fresh language added to their statement. Officials unanimously decided to lift the target for the benchmark rate by another 75 basis points to a range of 3.75% to 4%, its highest level since 2008.

Comments:

Ronald Temple, head of US equity at Lazard Asset Management:

“This is not an environment in which the Fed will pivot or signal a pivot. To do so would be malpractice, and the Fed knows that. In December, the Fed will have two more inflation reports and two more jobs reports. Then, perhaps, the FOMC can signal a deceleration in tightening, but not before.”

Ian Lyngen and Ben Jeffery, strategists at BMO Capital Markets:

“One thing is obvious from the Fed’s tone; ‘Santa Pause’ ain’t coming to town.”

Edward Moya, senior market analyst at Oanda:

“Stocks might struggle here as the risk of the Fed taking rates above 5.00% are clearly still on the table.”

Sam Stovall, chief investment strategist at CFRA:

“Of course data will largely determine the policy path going forward. Our best guess is that the Fed continues to take the more hawkish path.”

Quincy Krosby, chief global strategist at LPL Financial:

“Factoring in the bond market’s assessment, markets are becoming increasingly convinced that the path towards the terminal rate will include a recession.”

Data Wednesday showed hiring at US companies rose in October by more than forecast, underscoring resilient labor demand despite the Fed’s efforts to cool the economy. A strong job market has fueled fast wage growth, contributing to rapid inflation and putting pressure on the Fed to aggressively tighten monetary policy.

The Treasury halted the longest string of cutbacks to its quarterly sales of longer-term debt in about eight years, showcasing the end of a period of historic reduction in the fiscal deficit.

In corporate news, Boeing Co.’s chief said the planemaker could generate $10 billion in cash annually by mid-decade, once it turns around its operations after years of setbacks and miscues. China has ordered a seven-day lockdown of the area around Foxconn Technology Group’s main plant in Zhengzhou, a move that will severely curtail shipments in and out of the world’s largest iPhone factory.

Key events this week:

Bank of England rate decision, Thursday
US factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
ECB President Christine Lagarde speaks, Thursday
US nonfarm payrolls, unemployment, Friday

Some of the main moves in markets:

Stocks