U.S. Stocks Move Sharply Lower Amid Renewed Interest Rate Concerns

With renewed concerns about the outlook for interest rates weighing on the markets, stocks moved mostly lower over the course of the trading session on Wednesday.

The major averages spent much of the session on opposite sides of the unchanged but all came under pressure late in the trading day.

The tech-heavy Nasdaq led the way lower, tumbling 209.06 points or 1.5 percent to 13,469.13, its lowest closing level in almost a month.

The S&P 500 also slumped 41.75 points or 0.9 percent to a nearly one-month closing low of 4,402.20, while the Dow posted a more modest loss, slipping 76.85 points or 0.2 percent to 34,440.88.

The late-day sell-off on Wall Street came after the Federal Reserve announced its widely expected decision to leave interest rates unchanged but raised its forecast for rates at the end of next year.

The Fed said it decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent after raising rates by 25 basis points in July.

However, the central bank’s latest projections suggest Fed officials expect one more rate hike this year, forecasting a median rate of 5.6 percent by the end of 2023.

While the forecast for the end of the year was unchanged from June, the latest projections also indicate officials expect rates to remain higher for longer than previously anticipated.

The forecast for rates at the end of 2024 was raised to 5.1 percent from 4.6 percent in June, while the outlook for rates at the end of 2025 was increased to 3.9 percent from 3.4 percent.

Expectations for rates to remain higher for longer may reflect an improved assessment of the economy, with the Fed’s statement saying economic activity has been expanding at a “solid pace” compared to the “moderate pace” described in July.

“While this meeting was widely viewed as a ‘skip’ meeting, we think it still remains to be seen if another hike is in the cards later this year,” said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management. “Fed officials appear to be divided on whether higher policy rates are needed to bring inflation back down to their 2% target.”

“In addition, there are significant risks to the economy on the horizon with the autoworkers strike in motion and the potential for a government shutdown looming,” he added. “Both these events could sideline the Fed from another hike this year.”

The Fed’s next monetary policy meeting is scheduled for October 31-November 1, with CME Group’s FedWatch Tool currently indicating a 73.6 percent chance rates will remain unchanged and a 26.4 percent chance of a quarter point rate increase.

Sector News

Semiconductor stocks showed a significant move to the downside, dragging the Philadelphia Semiconductor Index down by 1.7 percent to its lowest closing level in almost four months.

Software and networking stocks also saw considerable weakness on the day, contributing to the steep drop by the tech-heavy Nasdaq.

Weakness also emerged among energy stocks, while gold stocks saw notable strength amid an increase by the price of the precious metal.

With gold for December delivery climbing $13.40 to $1,967.10 an ounce, the NYSE Arca Gold Bugs Index advanced by 1.4 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan’s Nikkei 225 Index slid by 0.7 percent, while China’s Shanghai Composite Index fell by 0.5 percent.

Meanwhile, the major European markets moved to the upside on the day. While the U.K.’s FTSE 100 Index advanced by 0.9 percent, the German DAX Index climbed by 0.8 and the French CAC 40 Index increased by 0.7 percent.

In the bond market, treasuries saw considerable volatility following the Fed announcement but managed to close modestly higher. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slipped 1.6 basis points to 4.349 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, while reports on weekly jobless claims, existing home sales and Philadelphia-area manufacturing activity may also attract attention.

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