S&P 500, and Nasdaq decline as anxiety over rate hikes arise

Despite new evidence of decreasing inflation, the Nasdaq & S&P 500 reverted to a close negative on Thursday as investors realised the Federal Reserve still has to quickly raise interest rates to effectively control increasing consumer costs.

After earlier reaching new three-month highs in response to data that indicated the U.S. producer pricing index (PPI) unexpectedly dropped in July, the S&P 500 (.SPX) finished a little lower.

As a result of the PPI decline, more traders are betting that the Fed will raise interest rates by 50 bps—or basis points in September as opposed to the 75 basis points that were anticipated earlier in the week.

Following a softer-than-anticipated reading on consumer prices on Wednesday, the S&P 500 & Nasdaq both increased by more than 2%. However, there is little question that policymakers will strengthen monetary policy until inflationary pressures have completely subsided.

The Nasdaq fell as investors doubted the health of the economy as the labour market showed signs of weakening and the number of Americans submitting new allegations for unemployment benefits increased for the second consecutive week.

Both the CPI reading from yesterday and the PPI reading from this morning exceeded analyst expectations. According to George Catrambone, current head of U.S. trading at DWS Group, it, therefore, matched that pattern, that high inflation has happened as energy prices continue to decrease. However, he worries about a stall tactic.

The Nasdaq Composite (.IXIC) fell 74.89 points, or 0.58%, to 12,779.91, while the S&P 500 (.SPX) fell 2.97 points, or 0.07%, to 4,207.27. The Dow Jones Industrial Average (.DJI) increased 27.16 points, or 0.08%, to 33,336.67.

Comparatively to the 11.06 billion norms for the entire session over the previous 20 trading days, there were 12.36 billion shares traded on U.S. exchanges.

Health care (.SPXHC) led the 6 main S&P 500 sectors that experienced declines. Value stocks (.IVX) gained 0.4% and growth shares (.IGX) dipped 0.5% as energy (.SPNY) surged 3.2% to lead gainers.

Goldman Sachs (GS.N) & JPMorgan Chase & Co (JPM.N) both saw gains of 1.1% and 1.5 percent, respectively, as the banks (.SPXBK) continued their uptrend.

Benchmark U.S. Treasury yields reached more than two-week peaks as bond investors wagered that the Fed will continue raising rates even though inflationary pressures have somewhat subsided because inflation is still on the rise.

Jack Janasiewicz, Natixis Investment Managers Solutions’ chief portfolio strategist, commented that demand is still too robust as seen by a rise in total spending power of about 9%. As a result, the Fed may remain aggressive for longer than many anticipate.

The Fed may need to exert a little more effort to try to reduce the excess consumption side of the equation, according to Janasiewicz, who stated that this is making people a little more concerned.

Elevated-growth stocks that had gained on Wednesday lost ground, with Amazon.com Inc. (AMZN.O) down 1.5% and Tesla Inc. (TSLA.O) falling 2.6%.

The tech-oriented Nasdaq is down around 18% so far this year despite its recent recovery from mid-June lows because investors’ enthusiasm for equities, especially high-growth businesses, has been dampened by worries about an aggressive monetary policy.

Since March, the U.S. central bank has increased its policy rate by 225 bps to reduce demand without significantly increasing layoffs.

In earnings-related news, Walt Disney (DIS.N) saw a 4.7% increase as the media behemoth revealed it would raise fees for those who want to stream Disney+ or Hulu without ads, passing competitor Netflix Inc (NFLX.O) only with 221 million streaming subscribers.

When Bumble Inc (BMBL.O) lowered its full-year revenue forecast due to the Ukraine war and rivalry from competitor Match Group Inc (MTCH.O) in the dating websites market, the stock slumped 8.6%.

On the NYSE, advancers outweighed decliners by a ratio of 1.54 to 1; on the Nasdaq, advancers were favoured by a ratio of 1.25 to 1.

The Nasdaq Composite registered 69 new highs with 22 new lows, while the S&P 500 recorded four fresh 52-week highs with 29 new lows.