Wall Street Close: FOMC, Jerome Powell weigh on the equity benchmarks

• US equities post losses on bullish Fed, Powell’s inflation concerns.
• Seven Fed officials expect hikes in 2022 and 13 in 2023, Powell accepts inflation pressure.
• US 10-year Treasury yields jumped the most since early March.
• Consumer discretionary and retail battle bears amid growth optimism.

US equity benchmarks posted another day of losses as the Federal Reserve (Fed) matched market fears during the much-awaited Wednesday meeting. Although tapering and rate hike concerns grew momentum after the announcements, economic optimism and already priced-in moves limited the market’s losses.

US Fed matched wide market forecasts of keeping the monetary policy intact but the quarterly economic projections were the key. The policymakers not only revised up the near-term GDP and inflation forecasts but also pumped the rate-hike expectations, mostly known as dot-plot. As per the latest update, US GDP may grow 7.0% in 2021 versus 6.5% previous whereas the PCE figure, the Fed’s preferred inflation gauge, is now seen at 3.4% for 2021 and 2.1% for the next year.

Fed Chairman Jerome Powell also weighed on the stocks by accepting that the inflation run-up could be more consistent than earlier expected. Even so, the Fed Boss highlights vaccine-led economic recovery to push back the rate-hike and tapering concerns, but the markets didn’t believe in them.

Following the Fed-led action, the US dollar index (DXY) jumped the most in over a year while the US 10-year Treasury yields rallied 8.2 basis points (bps) to 1.58%. It’s worth noting that gold slumped and WTI also stepped back due to the FOMC.

This has led to the red prints of all the three key equity benchmarks even as upbeat growth forecasts restricted the losses.

That said, Dow Jones Industrial Average (DJI) loses the most, down 265.66 points or 0.77%, to 34,033.67 while S&P 500 came in second with a loss of 22.89 points or 0.54% to 4223.70. Further, Nasdaq was the least affected, which may be due to the US bond moves, printing 0.24% downside or 33.17 points of declines to 14,039.68.

It’s worth noting that retails and consumer discretionary could also join tech shares to battle the market bears. Stock-specific moves mark Kindred Biosciences as the key winner, up over 45%, following a deal to buy Elanco Animal Health. On the contrary, Inhikibase Therapeutics and Blue Apron were the biggest losers with over 20% daily downside.

Given the market’s awareness of the Fed decision, followed by a not-so-heavy reaction from equities, the bulls may seek a return and can follow the second-tier US activity and jobs data for the purpose.

Also read: Forex Today: Long live King Dollar