Stocks close lower after Federal Reserve’s hawkish pause.
Stocks close lower after Federal Reserve's hawkish pause.
Fed Holds Rates Steady, Signaling Longer Duration
The Federal Reserve’s policy announcement created choppy waters in the stock market leading up to the event. While the major indexes failed to soar after the central bank kept interest rates steady, as expected, they did indicate that rates would stay higher for a longer period of time.
The Federal Reserve’s Summary of Economic Projections (SEP), also known as the “dot plot,” revealed that 12 out of the 19 members expect another quarter-percentage-point rate hike by the end of the year. This decision left the short-term federal funds rate at 5.25% to 5.5%, the highest it has been in 22 years. Additionally, officials now anticipate only two 0.25% rate cuts next year, down from the previously projected four. They also expect the federal funds rate to remain above 5% through 2024.
Fed Chair Jerome Powell, during his subsequent press conference, stated that any future moves by the central bank will depend on the “totality” of economic data. Powell added that the committee plans to maintain a restrictive policy until they are confident that inflation is sustainably moving down towards their target, even if it means a period of below-trend growth and some softening of labor conditions.
Unsurprisingly, many of Wall Street’s top minds were quick to react to the Fed announcement. Eric Sterner, the chief investment officer of Apollon Wealth Management, expressed his lack of surprise regarding the Fed’s decision to keep one more rate hike on the table for later this year, depending on the incoming data. Sterner also shared concerns that the more restrictive outlook into 2024 and 2025 could spark fears of a recession and hard landing among investors. He highlighted higher energy prices and the ongoing United Auto Workers (UAW) strike as potential headwinds to the Fed’s pursuit of its 2% inflation target.
Bausch Health Stock Gets a Boost from Jefferies
In other stock news, Jefferies analyst Glen Santangelo upgraded healthcare stock, Bausch Health (BHC), to Buy from Hold. Santangelo also raised his price target from $9 to $16, nearly double the stock’s closing price of $8.34. Santangelo expressed confidence in Bausch Health’s strong legal position to prevent generics of its irritable bowel syndrome drug, Xifaxan, from entering the market until 2028.
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Furthermore, Klaviyo (KYVO), a marketing automation firm, followed in the footsteps of successful initial public offerings (IPOs) like chipmaker Arm Holdings (ARM, -4.1%) and online grocery delivery firm Instacart (CART, -10.7%). Klaviyo priced its IPO at $30 per share, the high end of its range, and opened at $36.75. Although shares reached an intraday high of $37.00, they closed at $32.76.
As for the major indexes, the Dow Jones Industrial Average slipped 0.2% to 34,440, while the Nasdaq Composite (-1.5% at 13,469) and the S&P 500 (-0.9% at 4,402) experienced more significant losses.
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In conclusion, the Federal Reserve’s decision to hold interest rates steady, along with their indication of an extended period of higher rates, has generated mixed reactions from investors. The dot plot projections reveal the anticipation of another rate hike later this year, while rate cuts for next year have been scaled back. Fed Chair Jerome Powell emphasized the importance of economic data in determining future policy moves. Meanwhile, in the stock market, Bausch Health’s stock received a substantial boost due to an upgrade from Jefferies, and Klaviyo’s IPO experienced a successful launch. However, overall, the major indexes faced losses. Investors will now closely monitor economic indicators and upcoming events to assess the potential impact on the market.
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