Wall Street’s main indexes closed lower on Thursday (Nov 14) after Federal Reserve chair Jerome Powell dampened investor hopes for another interest rate cut this year by saying the US central bank need not rush to ease monetary policy.
Powell said at a Dallas Fed event that with the economy still growing, the job market solid and inflation still above the 2 per cent target, the Fed can deliberate carefully on rate cuts.
While traders were still betting on a 25-basis point reduction at the Fed’s December meeting, the probability sank to 55.5 per cent from 76 per cent earlier in the afternoon and from 82.5 per cent on Wednesday, the CME FedWatch tool showed.
“The comments from Powell put more cold water on what used to be a very optimistic outlook on the path for rate cuts,” said Adam Hetts, global head of Multi-Asset at Janus Henderson Investors.
“However, we can’t take for granted that inflation and labour are in balance so this is an encouraging message on the economy.”
The S&P 500 lost 36.21 points or 0.6 per cent to end at 5,949.17, while the Nasdaq Composite lost 123.07 points or 0.6 per cent to 19,107.65. The Dow Jones Industrial Average fell 206.33 points or 0.5 per cent to 43,750.86.
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Earlier on Thursday data showed the producer price index for final demand rose 0.2 per cent on a monthly basis in October, in line with forecasts, though the annual rise of 2.4 per cent was a touch higher than expectations.
Jobless claims dropped 4,000 to a seasonally adjusted 217,000 for the week ended Nov 9, lower than forecast.
“There’s more and more evidence that inflation remains higher than the Fed’s 2 per cent target,” said Melissa Brown, managing director for Investment Decision Research at SimCorp in New York. “The numbers were roughly in line with expectations but sometimes investors step back and say, ‘What does this really mean?‘ It leads to more uncertainty about what the Fed does after the December meeting.”
Last week’s post-US election rally has been waning this week as focus turned to the potential inflationary pressures from policies under President-elect Donald Trump’s administration.
Among the S&P 500‘s 11 major industry sectors, industrials was the biggest decliner with big drags from defense companies, which had rallied sharply in the days after the election.
RTX was the defence sector’s biggest weight on Thursday, falling to its lowest level since Sep 19 while General Dynamics was also a big drag, hitting its lowest level since Oct 31.
The blue-chip Dow had some support from a rally in Walt Disney after the entertainment giant reported quarterly earnings that beat Wall Street’s estimates and offered robust guidance for the coming years.
Consumer discretionary stocks also weighed on the S&P 500, with some pressure from electric vehicle makers.
Shares of electric vehicle maker Tesla and Rivian Automotive fell after Reuters reported that Trump’s transition team is planning to kill the US$7,500 consumer tax credit for electric-vehicle purchases as part of broader tax-reform legislation.
Some other Fed policymakers have shifted their attention back to inflation risks as they weighed in on when, and how fast and far, to cut interest rates.
Fed governor Adriana Kugler said the central bank had made considerable progress towards achieving its job and inflation goals. Richmond Fed president Tom Barkin said high union wage settlements and the possibility of coming tariff increases could make Fed officials more cautious about thinking they have won their battle against high inflation.
Tapestry hit its highest level since 2013. The Coach parent said it was terminating its US$8.5 billion deal for Capri after the deal was blocked by a US judge. Capri’s shares also rose. REUTERS
