Stocks sank on Thursday, falling for a fourth straight day. The decline occurred the day after the Federal Reserve announced another three-quarter point increase in interest rates, sending a message that a change of direction or rate cut is unlikely any time soon.

All Major Averages Slump

Closing at 32,001.25, the Dow Jones Industrial Average lost 146.51 points or 0.46%. The Nasdaq Composite fell 1.73% to close at 10,342.94, while the S&P 500 lost 1.06% to close at 3,719.89.

As traders analyzed the most recent rate decision, yields increased, putting pressure on stocks. The benchmark 10-year Treasury yield increased 9 basis points to approximately 4.15%, while the yield on the 2-year Treasury note reached its highest level since July 2007.

S&P 500 TECHNICAL CHART

U.S. stocks remain under pressure due to the post-Fed hangover even though the effects of the first round of hikes are already starting to materialize. Stocks won’t suffer a horrible demise in this situation, but they will soften until markets begin to reflect a little more Fed hawkishness.

Trading first interpreted the Federal Reserve’s speech as dovish, implying lower rate hikes in the future, and had anticipated the central bank’s 0.75 percentage point rate increase.

Futures Down

Dow Jones futures dropped 0.5%. Nasdaq 100 futures dropped 1%, while S&P 500 futures fell 0.8%. Prior to the opening of the U.S. stock market on Thursday, the Bank of England increased interest rates by 75 basis points to 3%.

The yield on the 10-year Treasury rose 13 basis points to 4.19%. Accordingly, it is likely that yields will break out of a multi-day range and advance toward 14-year highs reached late last month. After a significant positive reversal on Wednesday, the dollar was increasing.

Futures for crude dipped 1%. Futures on copper decreased by 2%.

Slower Fed Hikes Ahead

When Fed Chair Jerome Powell said it was “premature” to talk about a rate hike pause and that the so-called “terminal rate,” or the point at which rates peak, would likely be higher than the Fed previously stated, the stock market initially rose on Wednesday. However, those gains were quickly reversed.

“We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected,” he said.

Wall Street’s hopes that the central bank might hint that it might be thinking about holding back on its brash rate increases, which have dragged on the stock market this year, were crushed by the statements.

In addition to slowing the economy by discouraging borrowing, higher rates also make stocks appear less alluring when compared to safer investments like bonds and certificates of deposit (CDs).

Many predict that the market will remain in a seesaw until it becomes obvious that inflation has decreased and the Fed will cease raising interest rates. 

Upcoming October Jobs Report

Investors’ focus has shifted to the October nonfarm payrolls, which will be released on Friday. While positive indicators for the economy, a high number of jobs created and a low unemployment rate may indicate that the Fed has more work to do. The strong economy is starting to reveal cracks, but the Fed wants to see more “duress” before it can support a change of course.

Increased unemployment is required for inflation to decline. When people lose their jobs, they will stop consuming as many goods and services. The consumer price index report for the coming week will provide additional information about inflation and the economy.

In other news, the corporate earnings season went on, with Qualcomm, Roku, and Fortinet all experiencing losses due to weak quarterly results and future guidance. Despite a great quarter and an increase in outlook, Kellogg’s shares decreased by more than 8%.

All the major averages are expected to decline this week; the Dow and S&P are down, respectively, 2.62% and 4.64%. The Nasdaq is on track to have its worst weekly performance since January 2022 after losing 6.84% this week.

NFP statistics must be on the soft side and show a sizable slowdown in hiring for sentiment to improve. Contrary to popular belief, the Fed must have a weaker labor market in order to reduce inflation more quickly; otherwise, it will continue its aggressive tightening strategy for the foreseeable future.

All bets are off, though, if the nonfarm payroll figures come in beyond expectations. This scenario would raise FOMC terminal rate expectations, which would increase volatility and be negative for risk assets as a whole.

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