US stocks tumbled on Wednesday following the Federal Reserve's decision to hold interest rates steady and Chair Jerome Powell's hint that the central bank would not begin cutting rates at its next meeting in March.
The tech-heavy Nasdaq Composite (^IXIC) fell over 2.2% on Wednesday. The benchmark S&P 500 (^GSPC) traded about 1.6% lower after slumping slightly below its record high on Tuesday. The blue-chip Dow Jones Industrial Average (^DJI), meanwhile, slumped 0.8%, or more than 300 points.
The sharp move lower marked the worst single-day performance for the S&P 500 since September.
While expecting the Fed's rate decision on Wednesday, Wall Street had been looking for clues as to when the Fed might cut rates. It got a couple of big ones: In its policy statement, the Fed noted it doesn't expect it will be appropriate to cut interest rates until it has "greater confidence" inflation is falling to 2%.
"I don't think it’s likely that the committee will reach a level of confidence" by the March meeting, Powell said at a subsequent press conference.
Stocks had already had a rough start to the day after the first batch of results from tech giants largely failed to satisfy investors.
"Magnificent Seven" names Microsoft (MSFT) and Alphabet (GOOGL, GOOG), along with chipmaker AMD (AMD), took center stage on the earnings docket Tuesday. All three stocks were hit Wednesday, with an over 7% drop from the Google parent leading the losses.
The poor start from the tech megacaps, which are expected to do much of the heavy lifting for the S&P 500 this earnings season, could unnerve Wall Street — at least until Apple (AAPL), Amazon (AMZN), and Meta (META) get their turn on Thursday.
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Stocks have worst day in months as Fed seeks more evidence of inflation falling
The S&P 500 (^GSPC) had its worst day in four months on Wednesday following the Federal Reserve's decision to hold interest rates steady and Chair Jerome Powell's hint that the central bank would not begin cutting rates at its next meeting in March.
The tech-heavy Nasdaq Composite (^IXIC) fell over 2.2% Wednesday. The benchmark S&P 500 traded about 1.6% lower after slumping slightly below its record high on Tuesday. The blue-chip Dow Jones Industrial Average (^DJI), meanwhile, slumped 0.8%, or more than 300 points.
- Josh Schafer
Investors slash bets on a March rate cut
Federal Reserve chair Jerome Powell poured cold water on speculation the Fed could begin cutting in March.
He said cutting in March is "probably not the most likely case, or what we'd call the base case."
And closely tracked bets on when the Fed will cut moved accordingly. Investors are placing a roughly 36% chance of a cut in March, per the CME FedWatch Tool. Prior to the meeting, the odds had been higher than 60%. A month ago, investors had placed nearly a 90% chance the Fed would cut in March.
- Josh Schafer
March intererst rate cut 'probably not the most likely case,' Powell says
When the Federal Reserve will begin cutting interest rates has been the hot debate on Wall Street since the December Fed meeting.
During a Wednesday press conference, Fed Chair Jerome Powell tempered expectations that the first cut will come in March.
"I don't think it's likely the Committee will reach a level of confidence by the time of the March meeting to identify March as the time to [cut rates]," Powell said.
He added: "That's probably not the most likely case, or what we'd call the base case."
Stocks moved lower on the comments.
- Josh Schafer
Powell: Fed isn't looking for softening in economic data, just falling inflation
Strong economic data has often been listed as a key concern that could keep inflation sticky.
But when asked if the labor market and overall consumption need to weaken in order for the Federal Reserve to feel confident cutting interest rates, Fed Chair Jerome Powell said that's not a goal.
"Whereas a year ago we were thinking that we needed to see some softening in economic activity, that hasn't been the case," said Powell during the press conference Wednesday. "We look at stronger growth — we don't look at it as a problem. I think we want to see strong growth, we want to see a strong labor market."
To the Fed, the key to being able to start cutting interest rates is more confirmation inflation will continue falling. Month over month, core PCE rose 0.2% in December, up from 0.1% in November. Importantly, annualized core PCE over the last three and six months is now below the Fed's 2% target.
Powell said the Fed didn’t need to see "better data" but "more good data" and a "continuation of the data we have been seeing."
"It’s not that the six months data isn’t good enough," Powell said. "It is.”
The Fed just needs to see more of that trend, Powell said.
- Josh Schafer
Fed doesn't expect to cut until it has 'greater confidence' inflation will keep fall
The Federal Reserve held interest rates steady at its January meeting and removed language in its statement that reflected a bias toward tightening rates.
"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," the statement now reads.
Officials noted they are still "highly attentive" to inflation risks. They did, however, note that the risks to achieving its employment and inflation goals are coming into "better balance."
In a nod to stronger-than-expected fourth quarter GDP, officials characterized the economy as “expanding at a solid pace.” Though, they noted that the economic outlook is uncertain.
- Josh Schafer
Fed holds rates steady at January meeting
The Federal Reserve held rates steady in a range of 5.25%-5.50% at the conclusion of its two-day policy meeting on Wednesday. The central bank has maintained this range since July after it hiked rates to their highest level in 22 years.
Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET as investors will closely listen for any hints at when the central bank may begin cutting interest rates.
- Dani Romero
Another homebuilder reported a drop in closings. But there's reason for optimism.
“Typically, closings will peak in volume terms during the fiscal fourth quarter most years so this is an atypical situation,” Wedbush analyst Jay McCanless wrote in a note to clients after the earnings release.
MHO stock was down 3% midday. It's not the only homebuilder to report lower Q4 closings. PulteGroup (PHM) said Tuesday that its Q4 closings fell 14% year over year as mortgage rates peaked near 8% in October.
But rates have largely come down since then, which should, in theory, boost demand for homes.
In a positive sign, M/I Homes reported a 61% year-over-year increase in unit orders, higher than analysts' expectations for a 50% gain. Regionally, the biggest gainers were in the North and South, up 89% and 44% year-over-year, respectively.
A lack of inventory in the resale market has driven buyer interest in new homes. Sales for previously owned homes fell 6.2% last year, according to the National Association of Realtors.
- Josh Schafer
Can the positive Fed reaction continue?
As Yahoo Finance's Myles Udland wrote back in December, investors have been loving the Fed's soft landing rhetoric recently.
New analysis from Bespoke Investment Group shows the last two Fed meetings have seen stocks significantly outperform compared to prior meetings.
- Josh Schafer
A market check before the Fed
The Federal Reserve is expected to hold interest rates steady when its latest policy decision is announced at 2 p.m.
But, as per usual, many expect the highlights of the event to come once Fed Chair Jerome Powell begins addressing the media 2:30 p.m. ET as investors listen closely for any indication of when the Fed may begin raising interest rates.
Below are where some different markets of note are sitting ahead of the press conference.
Stocks are largely lower: The tech-heavy Nasdaq Composite (^IXIC) fell about 1.2% Wednesday. The benchmark S&P 500 (^GSPC) traded about 0.7% lower after slumping slightly below its record high on Tuesday. The blue-chip Dow Jones Industrial Average (^DJI), meanwhile, ticked slightly above the flatline. Last Fed meeting, Powell's comments sent the market ripping higher as soft-landing euphoria took over.
March is the month to watch: Investors are placing a roughly 63% chance of a cut in March, per the CME FedWatch Tool, up from the 41% chance seen a day prior. The significant moves come after an update on wage growth from the Employment Cost Index on Wednesday showed wage pressures cooling at their fastest quarterly rate in two and half years. Interest rates can be volatile, but investors will have an eye on them over the next 24 hours to see how consensus shifts.
Yields: The 10-year Treasury yield slipped about 10 basis points on Wednesday, sitting at 3.96%.
- Josh Schafer
Trending tickers on Wednesday
Stocks were lower headed into Wednesday's Federal Reserve press conference, as investors reacted negatively to several key earnings reports.
Alphabet (GOOGL, GOOG) led the Yahoo Finance trending tickers page on Wednesday as shares fell more than 6% following the company's earnings release Tuesday night. The company's fourth quarter advertising revenue of $65.5 billion came in lower than Wall Street's expectations of $65.8 billion.
New York Community Bancorp (NYCB) stock tanked more than 35%, on track for its worst single-day loss ever, after the bank posted a surprise loss for the quarter and cut its dividend payment. The S&P 500 regional banking ETF (KRE) slipped more than 3% on the news.
Boeing (BA) stock gained more than 6% after the plane maker topped earnings estimates for the fourth quarter. After a recent incident involving an Alaska Airlines 737 Max 9, Boeing suspended its 2024 guidance
AMD (AMD) shares slipped more than 2% after the chipmaker reported fourth quarter earnings results on Tuesday night. The company's guidance for the current quarter failed to meet the Street's lofty expectations for artificial intelligence influence.
- Josh Schafer
Don't expect confirmation of March rate cut from Jerome Powell on Wednesday
The Federal Reserve is expected to hold rates steady in its policy announcement on Wednesday afternoon.
Still, bets on an interest cut in March are pressing higher leading into the January Fed press conference. Investors are placing a roughly 63% chance of a cut in March, per the CME FedWatch Tool, up from the 41% chance seen a day prior.
The significant moves come after an update on wage growth from the Employment Cost Index on Wednesday showed wage pressures cooling at their fastest quarterly rate in two and half years. Many economists see this as a welcome sign for the Fed in its fight against inflation.
But that doesn't mean the Fed chair Jerome Powell is going to come out and divulge the central bank's plans during his 2:30 p.m. ET press conference.
"The Fed and Jay Powell, at the press conference, will be very cagey and very vague," former Fed economist Claudia Sahm told Yahoo Finance. "They're going to open a lot of doors in terms of when they'll cut, but they're going to signal very strongly, as have Fed officials speaking in recent week, that they're going to be cautious."
Sahm added that anyone hoping for a Fed rate cut in March "might be disappointed." The Fed likely needs to see more progress in inflation's path downward, Sahm said.
Still, Sahm sees a cut coming in May and notes that if the Fed doesn't ease its policy soo, her recession indicator that tracks unemployment, the Sahm Rule, could heat up.
"The labor market is strong," Sahm said. "The consumers are strong. But that doesn't mean it stays that way. ... It's just we need everything to hold together to get back to that fully rebalanced place. And that involves the Fed being back with lower interest rates."
For more charts like Sahm's, check out the newly released Yahoo Finance Chartbook: 33 charts tell the story of markets and the economy to start 2024
- Alexandra Canal
Paramount's sale frenzy just got more interesting
Paramount Global (PARA) shares skyrocketed more than 10% in early trading on Wednesday after Bloomberg reported media mogul Byron Allen made a $14.3 billion bid to buy all of Paramount's outstanding shares.
According to the report, Allen offered $28.58 each for the company's voting shares, marking a 50% premium compared to recent trading levels, and $21.53 for non-voting shares. Including existing debt, the total value of the deal amounts to roughly $30 billion. It's unclear how he would finance the takeover.
National Amusements (NAI), Paramount's holding company, owns approximately 10% of Paramount's equity capital value and maintains 77% of voting shares — valued at around $1 billion. Shari Redstone currently serves as the non-executive chairwoman of Paramount Global.
"We think PARA should immediately take this deal, as it represents >50% premium to yesterday's close, which is likely an acceptable premium for the majority of PARA's shareholders," KeyBanc analyst Brandon Nispel wrote in a new note to clients on Wednesday.
Per the report, Allen plans to sell the Paramount film studio, which has produced top movies from "Top Gun: Maverick" and the "Mission Impossible" franchise to the recent breakout thriller "Smile" and kid-friendly "Paw Patrol."
He would also sell real estate and some other intellectual property but retain the TV channels and Paramount+ streaming service. He would plan to run them on a more cost-efficient basis, Bloomberg noted.
Wells Fargo analyst Steve Cahall, who recently upgraded the stock to Equal Weight due to potential M&A unlocking value, added Allen's deal seems the most probable.
"While investors were initially skeptical Allen's offer can be financed, we think he wants the linear assets and there are ample buyers for the studio/content. This increases the probability something comes together, which will keep shares elevated," he wrote on Wednesday. "The implication is studio/real estate finances the deal."
Paramount has become the industry's No. 1 pick for a breakup or merger due to its small size relative to competitors — which has also meant getting passed over by some consumers that only want to pay for so many streamers.
- Josh Schafer
But Yahoo Finance's Brian Sozzi points out this might be saying more about investors' stance on the recent run-up in share price for names such as Microsoft (MSFT), Advanced Micro Devices (AMD), and Alphabet (GOOG, GOOGL) than about direct opinions on the earnings themselves:
"When you are a stock priced for greatness but only deliver a super good earnings report, sometimes investors will get in a huff.
Such is the case with the initial crop of earnings from tech behemoths Microsoft, Advanced Micro Devices, and Alphabet. The three stocks (with a combined market cap of $5.2 trillion) were instrumental in powering the broader market to records over the past year but are getting dinged after reporting earnings late Tuesday.
The moves are "signaling some overextension of the recent strong rally," said Deutsche Bank strategist Jim Reid in a client note seen by Yahoo Finance.
All three companies showed impressive growth numbers (especially AMD, with data center sales up 38% year over year and a 75% hike to 2024 AI chip sales estimates), hyped the AI train again (a surefire ticket for stock gains last year), and didn’t sound serious alarm bells on the economy.
So what gives?
The reality is that none of these quarters were perfect versus investor expectations of perfection. And believe me, investors have priced in perfection to these stocks: According to Yahoo Finance data, these three stocks trade on an average forward P/E multiple of 35 times. The S&P 500 trades at 22 times, for perspective.
The vibe coming off these earnings, according to sources, is that growth is good because of the expansion of new AI tools and other businesses but not mind-blowingly good."
- Josh Schafer
Tech earnings fumble drags on major averages at the open
US stocks turned mostly lower Wednesday, with the Nasdaq falling more than 1% at the open after the first batch of results from tech giants largely failed to satisfy investors. Wall Street was also bracing for the Federal Reserve's first interest rate decision of the year.
As we've noted throughout the week, negative earnings reactions for companies like Microsoft (MSFT) and Alphabet (GOOGL, GOOG) could be crucial for the market. Since tech stocks are expected to do much of the heavy lifting for the S&P 500 this earnings season, the poor start could unnerve Wall Street — at least until Apple (AAPL), Amazon (AMZN), and Meta (META) get their turn on Thursday.
Notably, this market narrative might not even hold for all of Wednesday, either. Federal Reserve Chair Jerome Powell will grab investor attention today with his press conference at 2:30 p.m. ET.
- Josh Schafer
US economy adds 107,000 private payroll jobs in January
The latest ADP employment report showed private employers added 107,000 jobs in January, below the estimates for 150,000 and below the 158,000 seen in December.
"Progress on inflation has brightened the economic picture despite a slowdown in hiring and pay," ADP chief economist Nela Richardson said in the company's release. "Wages adjusted for inflation have improved over the past six months, and the economy looks like it's headed toward a soft landing in the U.S. and globally."
ADP's latest report also included a closer look at slowing wage gains for job switchers, a key part of what had been the post-lockdown job market.
ADP's monthly private payroll data released Wednesday showed annual wage growth for workers changing jobs fell to 7.2% in January, the slowest pace of growth since May 2021. Meanwhile, workers who kept the same job saw wages rise 5.2% last month, the least since August 2021.
- Brett LoGiurato
A busy week continues
Good morning! The Federal Reserve is taking center stage today: Yahoo Finance's Jennifer Schonberger has what you need to know before the decision.
Here's what to look for on a lighter earnings docket sandwiched between tech giant reports: