The Federal Reserve’s decision to lift interest rates by 0.25% and signal at least one more hike this year caused a dip in the markets on Wednesday. The Dow Jones Industrial Average slipped 1.6%, or 530 points, while the Nasdaq and S&P 500 both fell 1.6% and 1.66%, respectively.
Fed Chair Jerome Powell quickly dismissed any possibility of rate cuts this year during the press conference that followed the monetary policy decision and updated projections. This led to market participants adjusting their forecasts, as they had previously predicted rate cuts later this year.
Banks were hit the hardest, with First Republic Bank falling almost 16%, Comerica falling 8.5%, and Lincoln National Corporation falling almost 8%. Investors were forced to rethink rate cuts that they believed were needed to help restore confidence in the banking system.
Bank of America also adjusted its forecast, citing tighter lending standards. The bank now expects only one more 25 basis points rate hike to lift rates to a terminal range of 5.0 to 5.25%, down 25bp from its prior target terminal range.
Low margin growth is a concern for GameStop
GameStop bucked the trend with a 35% gain on the day after delivering a surprise fourth-quarter profit. However, some on Wall Street flagged low margin growth as a concern. Cost cuts played a large role in helping the company return to profit, with operating income of $46.2 million reflecting a margin of just 2.1%.
Nike beats expectations, but China sales weigh
Nike Inc reported fiscal third-quarter results that beat expectations, but softer than expected sales in its key China market weighed. “China came in just below Street forecasts, but still grew 1% cFX YOY as the company experienced a rebound in January post the COVID-19 disruptions in December and noted ‘strong retail momentum’ around Chinese New Year accelerating into February,” according to Credit Suisse.
Tech sector loses momentum
As Treasury yields moved off session lows, rate-sensitive sectors of the market including tech lost momentum. Apple Inc, Amazon.com Inc, Meta Platforms Inc, Alphabet, and Microsoft Corporation all ended the day below session highs.
Overall, the Federal Reserve’s decision to lift rates and signal more hikes this year caused a dip in the markets as investors adjusted their forecasts. While banks were hit the hardest, GameStop’s surprise profit and Nike’s better-than-expected results provided some positivity for the day.