The Dow Jones Industrial Average fell for a second day as investors digested the Federal Reserve’s latest monetary policy update in which it raised its rate hike schedule and forecast higher inflation.
Commodity-related stocks drove the losses as the Fed’s move to eventually hike rates, coupled with a recent campaign by China to depress metal prices, blew the air from the year’s rise in commodity prices.
However, losses in the overall market were tame and the S&P 500 was still only 1% below an all-time high as the central bank continued its asset-buying program, which some investors believe would provide further short-term support for stocks.
The Dow Jones Industrial Average lost about 400 points, weighed down by its biggest losers, Dow Inc. and Caterpillar, as most commodity prices collapsed a second day. The S&P 500 lost about 0.6%. The Nasdaq Composite gained 0.3% as investors pushed their way into some big tech stocks, with Tesla and Snowflake up about 2%. Shopify and Twilio gained more than 5%.
Wednesday’s closely watched Federal Reserve meeting resulted in a selloff in stocks after the central bank extended its rate hike schedule and posted two rate hikes in 2023. The Fed also raised its inflation forecast for the year to 3.4%, one percentage point higher than the FOMC forecast in March.
Commodities stocks were weaker Thursday as higher interest rates could further weaken the big commodities rally in 2021. China is also cracking down on the rise in commodities to ease inflation fears. Freeport-McMoRan caused commodity stocks to fall about 7%. Copper futures were down 5%.
Bank stocks rose as 10-year yield abandoned gains after the Fed and a few more. The rollover in commodities weighed on returns.
“The prospect of an earlier throttling would slow the supply of US dollars and lead to a significant drop in commodity prices across the board,” Leuthold Group’s chief investment strategist Jim Paulsen told CNBC. “Commodities have been a popular investment over the past year as investors have added some portfolio protection against inflation. So many investors were likely overvalued before the Fed meeting and the US dollar’s reaction is forcing some rethinking.”
Hedge fund legend David Tepper told CNBC’s Scott Wapner that the Fed did a good job Wednesday and that “the stock market is still okay right now.” The S&P 500 is less than 0.8% away from an all-time high.
The Department of Labor reported that initial jobless claims rose to 412,000 last week, up from 375,000 the previous week. Economists polled by Dow Jones calculated 360,000 unemployment claims.
Lennar rose 2.5% after reporting better-than-expected gains.
