Wall Street drops to worst loss in months with Big Tech, hope for March rate cut
Big Tech stocks burned by the downside of high expectations triggered a sharp slide Wednesday on Wall Street. The market’s losses worsened after the Federal Reserve indicated that it probably won’t cut interest rates in March, as many traders had hoped.
The Standard & Poor’s 500 index dropped 1.6% for its worst day since September. It veered between more modest and sharper losses through a shaky afternoon as traders delayed bets for when the Fed would begin easing its main interest rate from its highest level since 2001.
The slide for Big Tech stocks dragged the Nasdaq composite to a market-leading loss of 2.2%. The Dow Jones industrial average, which has less of an emphasis on tech, fell a more modest 0.8%.
Alphabet was one of the heaviest weights on the market, and it fell 7.5% despite reporting stronger profit and revenue for the latest quarter than analysts expected. Underneath the surface, analysts pointed to some concerning trends in how much Google’s parent company is earning from advertising.
The bigger challenge, though, may have been the high expectations the company faces after how much its stock soared last year. Other Big Tech stocks that also accounted for a disproportionate chunk of the S&P 500’s rally to a record likewise struggled Wednesday in the face of high expectations.
An uptick in nationwide inflation could have bigger consequences for Californians who are already paying higher prices for basic goods and services, including housing and energy.
Microsoft fell 2.7% even though it delivered stronger profit and revenue than expected. One analyst, Dan Ives of Wedbush Securities, even called its quarterly report “a masterpiece that should be hung in the Louvre.”
Tesla, another member of the group of stocks nicknamed the “Magnificent Seven,” fell 2.2%. A judge in Delaware ruled a day earlier that its chief executive, Elon Musk, is not entitled to the landmark compensation package earlier awarded to him.
The Magnificent Seven were responsible for the majority of the S&P 500’s return last year, and three more members are scheduled to report their latest quarterly results Thursday: Amazon, Apple and Meta Platforms, the parent company of Facebook and Instagram. Expectations are high for them too.
Besides the Magnificent Seven, stocks have rallied to records because of hopes that a cool-down in inflation will convince the Fed to cut interest rates several times this year. Such cuts would relax the pressure on the economy and encourage investors to pay higher prices for stocks.
But the Fed on Wednesday left its main interest rate steady and made clear that it “does not expect it will be appropriate” to cut rates “until it has gained greater confidence that inflation is moving sustainably toward” its goal of 2%.
In a reversal from past decades, more college graduates and professionals are moving out of California than coming into it to escape the higher taxes and cost of living.
“We’re not declaring victory at all,” Fed Chair Jerome H. Powell said. He said it’s unlikely the Fed will get to that level of comfort by its next meeting in March.
“It’s probably not the most likely case,” he said, which sent stocks skidding late in trading.
But Powell also said Fed officials already have some confidence that day will arrive. They just need to see more months of data confirming that inflation is heading sustainably lower. “We have confidence,” he said. “It has been increasing, but we want to get greater confidence.”
Powell acknowledged the difficult position the Fed is in, with dangers arising from both acting too quickly and too late, even though “overall it’s a good picture” for the economy at the moment. Cutting rates too soon could ignite inflationary pressures, while acting too late would mean unnecessary pain for the economy and job market.
“Given how strong the economy has been, the Fed probably figures it can err on the side of cutting later and slower than what the market is pricing,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Treasury yields in the bond market swung up and down after the Fed’s announcement. They had been lower earlier after a couple of softer-than-expected reports on the economy.
One report said that growth in pay and benefits for U.S. workers was slower in the final three months of 2023 than economists expected. Although all workers would like bigger raises, the cooler-than-expected data could further calm what was one of the Fed’s big fears: that too-big pay gains would trigger a vicious cycle that ends up keeping inflation high.
A separate report from the ADP Research Institute also suggested that hiring by nongovernment employers was softer in January than economists expected. The Fed and Wall Street are hoping that the job market cools by just the right amount, enough to keep a lid on inflation but not so much that it causes a recession. A more comprehensive jobs report from the U.S. government will arrive Friday.
The yield on the 10-year Treasury fell to 3.92% from 4.04% late Tuesday. In October, it was above 5% and at its highest level since 2007.
All told, the S&P 500 fell 79.32 points to 4,845.65. The Dow dropped 317.07 points to 38,150.30, and the Nasdaq slumped 345.89 points to 15,164.01.
In stock markets abroad, indexes slumped sharply again in China amid continued worries about a weak economic recovery and troubles for the country’s heavily indebted property developers.
Stocks were mixed elsewhere in Asia and down modestly in Europe.
AP reporter Zimo Zhong contributed to this report.
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