September 30, 2022

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Stocks dip as investors digest hawkish Fed remarks, eye more sanctions

U.S. stocks fell Wednesday as investors eyed more hawkish remarks from key monetary policymakers. These suggested that more members of the Federal Reserve were open to moving aggressively to raise interest rates and bring down demand and persistently elevated levels of inflation.

[Click here to read what’s moving markets heading into Thursday, April 7]

The S&P 500 dropped, adding to losses after the blue-chip index ended Tuesday’s session lower by 1.3%. The Dow Jones Industrial Average and Nasdaq also extended declines. In the bond market, the benchmark 10-year Treasury yield rose to top 2.6%, marking its highest level since May 2019.

Developments on Russia’s war in Ukraine and the Western response remained in focus Wednesday as the U.S. announced another round of sanctions on the Kremlin. The U.S. add penalties to more Russian government officials and family members as well as to Russian-owned enterprises and financial institutions.

Meanwhile, hawkish commentary from Federal Reserve officials also knocked U.S. equities from their latest march higher and send Treasury yields spiking. The Fed’s meeting minutes released Wednesday afternoon showed central bankers were discussing starting quantitative tightening in the near-term, and that “many participants … would have preferred a 50 basis point increase” in benchmark interest rates at the March meeting.

The meeting minutes reaffirmed other, more recent remarks from monetary policymakers. Federal Reserve Governor Lael Brainard said Tuesday that the Federal Open Market Committee (FOMC) was “prepared to take stronger action” should already elevated indicators of inflation rates and expectations warrant such moves.

Speaking in a webcast, Brainard suggested this could include aggressive interest rate hikes and a much quicker drawdown of the Federal Reserve’s balance sheet — which has thus far ballooned to nearly $9 trillion — than in previous periods.

“Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19,” Brainard said. She noted the process of reducing the Fed’s balance sheet holdings, or beginning quantitative tightening, could begin as soon as the Fed’s next meeting in May.

Other Fed members also suggested they were on board with more policy tightening in the near-term. San Francisco Fed President Mary Daly told the Financial Times on Tuesday that the case for a 50 basis-point interest rate hike — or a hike double the size of the central bank’s typical per-meeting increase — “has grown.”

“The fact is, the Fed has made it very clear … it’s paramount that they go after inflation and do whatever it takes to staunch the rise in inflation,” Quincy Krosby, chief equity strategist for LPL Financial, told Yahoo Finance Live. “They’re going to do it, and I think the market is getting the sense that this is going to be a choppy path.”

“The Fed may go until it breaks something … but it’s clear that this is their mission, and they are going to go ahead with it, full steam – more than 2017, more than 2018,” she added, referring to the last time the Federal Reserve underwent quantitative tightening several years ago.

With inflation rates in the U.S. still holding at around 40-year highs and forcing the Fed’s hand in aggressively tightening financial conditions, some on Wall Street have downgraded their expectations for U.S. and global growth. Deutsche Bank economists said Tuesday they expected the U.S. to tip into a recession at the end of next year as the Fed rapidly hikes rates to address high prices.

“We now expect the U.S. economy to be in outright recession by late next year, and the [Euro area] in a growth recession in 2024 with unemployment edging up,” Deutsche Bank economists David Folkerts-Landau and Peter Hooper said. “Our baseline view is that these developments will spill over to damp growth in much of the rest of the world and at the same time help to bring inflation back toward mandated levels, diminishing the risk of greater disruptions further down the road.”

Still, the economists noted their call for a recession next year “is currently way out of consensus” — and indeed, many on Wall Street still see a slowdown, but not necessarily a period of negative growth in the near-term domestically.

“We’re not thinking that the Fed is going to push the economy into recession,” Veronica Willis, Wells Fargo Investment Institute investment strategy analyst, told Yahoo Finance Live on Tuesday. “I think most are not expecting that. But we are expecting kind of a slowdown in economic growth from what we had expected previously, but still around average economic growth here in the U.S.”

4:02 p.m. ET: Stocks fall, tech shares lag for a second straight day after more hawkish Fed commentary: Nasdaq declines by 2.2%

Here were the main moves in markets as of 4:02 p.m. ET:

  • S&P 500 (^GSPC): -43.86 (-0.97%) to 4,481.26

  • Dow (^DJI): -143.95 (-0.42%) to 34,497.23

  • Nasdaq (^IXIC): -315.35 (-2.22%) to 13,888.82

  • Crude (CL=F): -$4.65 (-4.56%) to $97.31 a barrel

  • Gold (GC=F): +$0.10 (+0.01%) to $1,927.60 per ounce

  • 10-year Treasury (^TNX): +5.3 bps to yield 2.6090%

2:31 p.m. ET: Stocks extend declines after Fed minutes

Here’s where markets were trading Wednesday afternoon

  • S&P 500 (^GSPC): -50.7 (-1.12%) to 4,474.42

  • Dow (^DJI): -226.28 (-0.65%) to 34,414.90

  • Nasdaq (^IXIC): -305.88 (-2.15%) to 13,893.13

  • Crude (CL=F): -$5.73 (-5.62%) to $96.23 a barrel

  • Gold (GC=F): -$6.30 (-0.33%) to $1,921.20 per ounce

  • 10-year Treasury (^TNX): +5.7 bps to yield 2.611%

2:09 p.m. ET: Fed offers more details on balance sheet rundown process, saying it will reduce assets ‘in a predictable manner’

The minutes from the Federal Open Market Committee’s March 15 and 16 meeting shed more light on how central bank officials were thinking about beginning the balance sheet runoff process this year.

“Participants reaffirmed that the Federal Reserve’s securities holdings should be reduced over time in a predictable manner,” according to the minutes.

While the Fed has not yet voted on how and when to begin the process of unwinding its balance sheet, some Fed officials suggested this would occur in the near-term. Fed Governor Lael Brainard, once considered a “dove” on the committee, suggested earlier this week the process could be announced as soon as May.

The Fed minutes also noted that, “participants generally agreed that monthly caps of about $60 billion for Treasury securities and about $35 billion for agency MBS [mortgage-backed securities] would likely be appropriate.”

9:45 a.m. ET: Bitcoin prices dip below $45,000, pulling down crypto-linked stocks

Bitcoin (BTC-USD) prices fell below $45,000 for the first time since last week on Wednesday, bringing shares of cryptocurrency-linked stocks including Coinbase (COIN), Bakkt Holdings (BKKT) and Riot Blockchain (RIOT) lower as well.

Bitcoin prices have been on a roller-coaster ride this year, tracking the volatility across other risk assets as geopolitical and monetary policy concerns increased. Prices began the year around $48,000 for the largest cryptocurrency by market cap, but dipped as low as below $35,000 so far this year.

Other major cryptocurrencies including Ethereum (ETH-USD), XRP (XRP-USD) and Solana (SOL-USD) also dipped Wednesday morning.

9:39 a.m. ET: JetBlue shares drop after airline makes competing bid for Spirit

JetBlue (JBLU) shares dropped Wednesday morning after the carrier made an offer to purchase Spirit Airlines (SAVE) — less than two months after the budget airline agreed to merge with Frontier Group (ULCC).

JetBlue stepped in with $3.6 billion offer to buy Spirit Airlines, with the all-cash deal coming out to $33 per outstanding Spirit share. The combined company would have a fleet of 450 aircraft with another 312 Airbus aircraft to be delivered over the next six years, and would bring more flights to hubs including New York and Florida, where both airlines already operate.

However, in February, Frontier Group made its own bid to buy Spirit for $2.9 billion, in a deal the companies said at the time would save customers about $1 billion per year. JetBlue said in its press release this morning that its offer was a “superior proposal” and that it would be “more effective than Ultra-Low-Cost Carriers in Introducing Competition and Bringing Down Legacy Carrier Fares.”

Wall Street, however, has expressed skepticism over a JetBlue-Spirit tie-up.

“The merits of a potential JetBlue-Spirit merger are not as abundantly clear to us as are those that could stem from other combinations among remaining, non-Big 3 airlines,” JPMorgan airline analyst Jamie Baker wrote in a note this morning.

9:31 a.m. ET: Stocks open lower, Treasury yields surge

Here’s where markets were trading Wednesday morning:

  • S&P 500 (^GSPC): -36.19 (-0.8%) to 4,488.93

  • Dow (^DJI): -229.02 (-0.66%) to 34,412.16

  • Nasdaq (^IXIC): -178.10 (-1.27%) to 14,023.64

  • Crude (CL=F): +$0.51 (+0.6%) to $102.57 a barrel

  • Gold (GC=F): +$2.20 (+0.11%) to $1,929.70 per ounce

  • 10-year Treasury (^TNX): +7.7 bps to yield 2.631%

8:00 a.m. ET: Mortgage applications fall for fourth straight week as rates rise further

U.S. mortgage applications dropped for a fourth consecutive week into the beginning of April, with fast-rising mortgage rates deterring homeowners from refinancing and new buyers from coming into the market.

The Mortgage Bankers Associations’ weekly index showed mortgage applications fell 6.3% week-on-week during the period ending April 1. This came following a 6.8% drop during the prior week.

Refinances fell 10% from the previous week and by 62% from the same week last year, bringing overall applications for refinances down to the lowest level since spring 2019. Purchases fell 3% week-over-week on a seasonally unadjusted basis, and declined 9% from the comparable period last year.

“Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months. The 30-year fixed mortgage rate increased for the fourth consecutive week to 4.90% and is now more than 1.5 percentage points higher than a year ago,” Joel Kan, MBA associate vice president of economic and industry forecasting, said in a press statement Wednesday.”

“The hot job market and rapid wage growth continue to support housing demand, despite the surge in rates and swift home-price appreciation,” Kan added. “However, insufficient for-sale inventory is restraining purchase activity.”

7:16 a.m. ET: Stock futures fall

Here’s where markets were trading Wednesday morning:

  • S&P 500 futures (ES=F): -38 points (-0.84%) to 4,482.25

  • Dow futures (YM=F): -214 points (-0.62%) to 34,336.00

  • Nasdaq futures (NQ=F): -203 points (-1.37%) to 14,625.00

  • Crude (CL=F): +$1.42 (+1.39%) to $103.38 a barrel

  • Gold (GC=F): +$4.70 (-0.24%) to $1,922.80 per ounce

  • 10-year Treasury (^TNX): +8.3 bps to yield 2.637%

6:10 p.m. ET Tuesday: Stock futures edge higher

Here’s where markets were trading Tuesday evening as the overnight session began:

  • S&P 500 futures (ES=F): +5.25 points (+0.12%) to 4,525.50

  • Dow futures (YM=F): +34 points (+0.1%) to 34,584.00

  • Nasdaq futures (NQ=F): +25.75 points (+0.17%) to 14,853.75

NEW YORK, NEW YORK - MARCH 30: Traders work on the floor of the New York Stock Exchange on March 30, 2022 in New York City. U.S. stocks opened low after rallying to start the week.  (Photo by Michael M. Santiago/Getty Images)

NEW YORK, NEW YORK – MARCH 30: Traders work on the floor of the New York Stock Exchange on March 30, 2022 in New York City. U.S. stocks opened low after rallying to start the week. (Photo by Michael M. Santiago/Getty Images)

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.

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