U.S. stocks slid, extending Wednesday’s losses following a Federal Reserve decision and commentary that failed to placate markets.
The S&P 500 (^GSPC) fell 1.58%, or 39.55 points, as of market close. The Dow (^DJI) declined 1.99%, or 464.06 points and hit its lowest level since October 2017. The Nasdaq (^IXIC) fell 1.63%, or 108.42 points. The tech-heavy index pared some losses after dipping into bear market territory at the lows of the session, or to a level more than 20% below its recent closing high of 8,109.69 points on August 29.
The sell-off accelerated as the U.S. Justice Department on Thursday announced charges against two Chinese nationals, alleging their involvement in a global hacking campaign to steal tech company secrets, intellectual property and personal data of thousands of members of the U.S. Navy. Prosecutors allege that the individuals operated in conjunction with the Chinese Ministry of State Security’s Tianjin State Security Bureau. The charges come amid an escalating trade war between China and the U.S.
Later in the day, stocks moved lower after the U.S. House of Representatives Speaker Paul Ryan said that President Donald Trump would not sign a funding resolution to prevent a partial government shutdown this weekend.
Stocks began their descent Wednesday after Federal Reserve officials announced their decision to raise the benchmark interest rate 25 basis points to between 2.25% and 2.5%, increasing the cost of borrowing money and affecting rates for home mortgages, credit cards and auto loans. But the Fed’s dot plot for next year now points to a median of two rate hikes in 2019, from three previously. Federal Reserve Chairman Jerome Powell signaled that the Fed has now arrived at the lower end of the neutral rate range, or a level which would neither overly stimulate nor slow the economy.
“Yesterday, there is no doubt that markets were expecting a bailout from the Fed – and threw a tantrum when they didn’t get it,” Brad McMillan, chief investment officer for Commonwealth Financial Network, wrote in a note Thursday.
The expected bailout the markets sought was for the Fed to raise rates at this meeting, which it did, but also that the Fed would signal that future rate increases were less likely.
Instead, Powell and the FOMC “indicated that they will probably hike rates only twice next year – but will keep raising rates,” McMillan said, with emphasis his. “By pretty much ignoring the recent financial market turmoil and focusing on continued economic strength, Powell put the markets on notice that the Fed will be much less willing to shape monetary policy in order to support asset prices.”
Other analysts noted that Fed officials’ outlooks have taken on a slightly darker tone since delivering their last statement.
“Powell’s press conference, while remaining upbeat, highlighted some dark clouds on the horizon: growth in other economies has moderated, and financial conditions have become less supportive of growth,” JPMorgan analyst Michael Feroli wrote in a note.
Feroli said Powell’s statements came across as “generally more dovish” than the FOMC statement. But he added that one area where Powell “firmly batted down expectations of a dovish turn was balance sheet normalization: he dismissed any idea that they were contemplating using the balance sheet to respond to incoming data.”
Powell said during Wednesday’s press conference that the central bank would continue shrinking its balance sheet at the current rate, allowing $50 billion worth of bonds the Fed had purchased to stimulate the economy during and after the financial crisis to run off per month. Earlier this week, President Donald Trump implored the Fed to freeze this action, tweeting: “Stop with the 50 B’s.”
Yields for bonds on the long end of the yield curve rose slightly Thursday afternoon. The yield on the 10-year Treasury note rose 2 basis points to 2.796%. The yield on the 30-year Treasury note rose 1.2 basis points to 3.025% as of 4:00 p.m. ET.
STOCKS: Budweiser brewer teams up with Tilray to research cannabis drinks, Marlboro-maker takes a stake in Juul
Altria (MO) announced Thursday that it sealed a $12.8 billion investment in Juul, taking a 35% stake in the e-cigarette company valued at $38 billion. Altria, which makes Marlboro cigarettes, said it will provide Juul with shelf space and access to Altria’s customers, as well as access to the company’s about 230,000 retail locations. S&P Global Ratings downgraded Altria’s issuer credit and issue-level ratings on unsecured debt to BBB from A- following the investment, while stating that the outlook remains stable. S&P noted that the stake in Juul, along with the previously announced investment in Cronos (CRON), will produce a debt-to-EBITDA ratio slightly under 3x for Altria. Shares of Altria fell 1.89% to $50.43 each as of market close.
AB InBev (BUD), the maker of Budweiser and the world’s largest beer brewer, said Wednesday that it is partnering with Canadian cannabis company Tilray (TLRY) to research cannabis-infused drinks. The companies said they will invest a combined $100 million to research non-alcoholic drinks containing tetrahydrocannabinol, or THC, and cannabidiol, or CBD. Shares Tilray rose 10.28% to $78.30 each as of market close, while shares of AB InBev fell along with the broader market by 1.47% to $67.79 each.
Walgreens Boots Alliance (WBA) delivered quarterly adjusted earnings that beat analyst expectations. However, the stock fell after the company said it will be aggressively cutting costs in a plan to save $1 billion per year within three years, which will lead to restructuring and other charges. Same-store retail sales for consumer items including toiletries and cosmetics fell 3.2% in the quarter, which Walgreens said was due to de-emphasizing certain products including tobacco. Shares of Walgreens fell 5% to $69.61 each as of market close.
Conagra (CAG), which houses brands including Marie Callender’s, Gardein and Slim Jim, reported quarterly net sales of $2.38 billion, missing estimates of $2.41 billion. However, the company beat estimates for earnings per share from continuing operations, delivering 67 cents per share versus 56 cents anticipated. But the packaged food company said it sees adjusted EPS for the full year of between $2.03 to $2.08, where the consensus estimate had called for $2.13 per share. Conagra’s stock fell 16.55% to $24.27 per share as of market close.
ECONOMY: New unemployment claims rose less than expected last week
Initial jobless claims in the U.S. rose to a seasonally adjusted 214,000 for the week ending December 15, the Department of Labor said in its weekly statement Thursday. This represented an increase of 8,000 from the previous week’s level of 206,000, a level that had neared a 49-year low. Consensus economist expectations had called for initial jobless claims to register at 215,000 for the week ending December 15.
Continuing claims rose to 1.688 million for the week, higher than the 1.661 million from the week prior and the 1.663 million expected.
The Conference Board’s Leading Economic Index rose 0.2% in November, outpacing expectations of a flat reading. This follows a downwardly revised 0.3% decline in October. The LEI comprises components including average weekly hours, unemployment insurance claims, new orders, building permits, stock prices and interest rate spreads.
“The LEI increased slightly in November, but its overall pace of improvement has slowed in the last two months,” Ataman Ozyildirim, director of economic research at The Conference Board, said in a statement. “Despite the recent volatility in stock prices, the strengths among the leading indicators have been widespread. Solid GDP growth at about 2.8% should continue in early 2019, but the LEI suggests the economy is likely to moderate further in the second half of 2019.”
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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