Wall Street closed sharply lower on Wednesday after witnessing a highly volatile session following the Fed's decision to hike rates for the fourth time this year. Investors opted for panic selling despite the fact that the central bank hinted at a more dovish stance in 2019 as well as positive developments on the U.S.-China trade war front. All three major stock indexes suffered significantly.
The Dow Jones Industrial Average (DJI) closed at 23,323.66, declining 1.5% or 351.98 points. The S&P 500 Index (INX) also lost 1.5% to close at 2,506.96. Meanwhile, the Nasdaq Composite Index (IXIC) closed at 6,636.83, shedding 2.2% or 147.08 points. A total of 10.81 billion shares were traded on Wednesday, higher than the last 20-session average of 8.22 billion shares. Decliners outnumbered advancers on the NYSE by 2.58-to-1 ratio. On the Nasdaq, decliners had an edge over advancers by 2.93-to-1 ratio. The CBOE VIX decreased 1.9% to close at 25.08.
How Did the Benchmarks Perform?
The Dow ended in negative territory reversing its previous day's gains. During Tuesday's trading the blue-chip index was up 381.7 points at its highest point and fell 513 points at the session-low. Notably, 29 components of the 30-stock index finished in the red while only one finished in the green.
The S&P 500 also ended in the red. During Wednesday's trading the benchmark index was up 39.13 points at the session high and fell 57.2 at its lowest point. The Communication Services Select Sector SPDR (XLC), Consumer Discretionary Select Sector SPDR (XLY) and Technology Select Sector SPDR (XLK) were down 2.1%, 2% and 2%, respectively. Notably, all 11 sectors of the broad-market index closed in the red.
The tech-heavy Nasdaq Composite ended in negative territory reversing previous day's gains due to weak performance by FAANG giants. During Tuesday's trading the tech-laden index was up 84.95 at its highest point and fell 197.41 points at its lowest level.
Fed Raises Benchmark Interest Rate
The Fed raised its benchmark lending target rate by a quarter percentage point to the range of 2.25-2.50%. This was the fourth rate hike by the central bank in 2018. However, the Fed hinted that it may lower the pace of rate hikes from the previous projections of three to two times for 2019.
The Central opted for fourth rate hike despite the fact that President Donald Trump severely criticized the Fed for adopting an aggressive monetary stance which according to him is acting as a hindrance to realize full potential of his government's fiscal stimulus.
The reason for Fed's dovish stance is a reflection of the U.S. economy. The central bank estimates that the U.S. economy will grow 3% and 2.3% in 2018 and 2019 respectively, lower than earlier forecast of 3.1% and 2.5% in September.
Unemployment rate has been kept unchanged at 3.7% and 3.5% in 2018 and 2019, respectively. Core PCE inflation rate is now projected at 1.9% and 2% in 2018 and 2019 respectively, lower than previous projection of 2% and 2.1% in September.
Consequently, shares of trade-sensitive stocks like Apple Inc. AAPL and NIKE Inc. NKE each declined 3.1%. Both stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Positive Development on Trade War Front
In an interview with Bloomberg, Treasury Secretary Steven Mnuchin said that the United States and China will meet in January 2019 to seek a solutionto its long running trade war. He said the two sides are engaged in telephonic conversation and a face-to-face meeting is around the corner. Chinese officials also confirmed Munchin's statement. Most of the stocks soared in early hours of trading yesterday following Munchin's interview.
The National Association of Realtors reported that existing-home sales came in at a seasonally adjusted annual rate of 5.32 million, beating the consensus estimate of 5.2 million. This was the second straight month of increasing sales. November's sales figure grew 1.9% sequentially but fell 0.7% year over year.
The Department of Commerce reported that the U.S. trade deficit increased to $124.8 billion in the third quarter of 2018 compared with $101.2 billion the second quarter. However, the third quarter deficit was lower than the consensus estimate of a deficit of $125.1 million.
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