Stocks ended lower Thursday, as investors parsed a surprisingly hawkish policy stance from the Federal Reserve ahead of a key inflation reading and prep for December quarter earnings from Apple after the close.
Fed Chairman Jerome Powell noted in his question and answer session with the media late Wednesday that elevated inflation would likely last through to the end of the year and refused to explicitly rule-out the prospect of rate hikes at consecutive policy meetings from March and beyond — or a single-meeting rate hike of 50 basis points — only committing to be “humble and nimble” with respect to any near-term moves.
“Chair Powell refused to rule out such actions, but that’s because he cannot offer such obvious and potentially risky hostages to fortune,” said Ian Shepherdson of Pantheon Macroecnomics. “The reaction to his words in the stock market makes it clear just how precarious the market is, and that ultimately makes aggressive Fed action more difficult.”
That assessment might explain why benchmark 10-year note yields retreated to 1.81%, even as interest rate traders price in as many as five rate hikes between now and the end of the year, as some bet that an aggressive Fed could choke economic growth.
An earlier statement from the Fed, which suggested the reduction of its $9 trillion balance sheet could occur alongside rate hikes, added to the hawkish tone of the overall messaging, sending Treasury note yields higher and pushing stocks into a sharp late-session pullback.
The Commerce Department said Q4 GDP grew at a much-stronger-than-expected pace of 6.9%, the quickest since 1984, although much of that gain was put down to a post-pandemic increase in inventories, which will fall-off in subsequent quarterly estimates.
Weekly jobless claims, meanwhile, fell by 30,000 to 260,000, the Labor Department reported, taking the four-week average to 247,000.
The Dow Jones Industrial Average lost 7 points, or 0.02%, to 34,164, while the S&P 500 slipped 0.54%.
The Nasdaq Composite was off 1.4% amid a steep pullback in Tesla (TSLA) – Get Tesla Inc Report shares, which fell 11.6% after the carmaker said its production capacity would remain limited by supply-chain disruptions, but nonetheless pledged to grow sales by 50% this coming year.
Intel (INTC) – Get Intel Corporation Report shares were also in the red, falling 7% after the chipmaker cautioned that supply chain disruptions would keep a lid on near-term profits growth, clouding the impact of its record fourth quarter revenue haul.
Netflix (NFLX) – Get Netflix, Inc. Report shares, however, surged 7.5% after billionaire investor Bill Ackman revealed a new $1 billion stake in the streaming group.
Apple (AAPL) – Get Apple Inc. Report shares edged lower ahead of the tech giant’s December quarter earnings due after the closing bell with investors focused on the impact of supply chain disruptions on its near-term sales outlook.
McDonald’s Corp. (MCD) – Get McDonald’s Corporation Report ended slightly lower after the world’s biggest restaurant chain posted weaker-than-expected fourth quarter earnings while noting that input cost increases were only partly off-set by menu price hikes.
Comcast (CMCSA) – Get Comcast Corporation Class A Report slipped nearly 1% after it reported fourth-quarter earnings and revenue that beat analysts’ forecasts as growth at its theme parks and within its studio business offset a lull in new broadband internet customers.
Brent futures contracts for March delivery, the global benchmark, were marked 32 cents lower on the session at $89.64 per barrel while WTI futures for the same month, which are tightly-linked to U.S. gas prices, lost 44 cents to $86.91 per barrel.
In overseas markets, Europe’s Stoxx 600 was marked 0.65% higher, while the MSCI ex-Japan index in Asia slumped 2.09% as the flow-through from last night’s Wall Street selloff hit regional shares. Tokyo’s Nikkei 225 closed down 3.11% at 26,170.30 points.