U.S. stocks stumbled Thursday morning following a pivotal day on Wall Street marked by the Federal Reserve’s long-anticipated move to hike short-term interest rates for the first time in three years.
The S&P 500 was down 0.5% as of 9:30 a.m. ET to 4,336.06 and the Dow Jones Industrial Average shed about 160 points to 13,334.07. The Nasdaq Composite edged 0.7% lower to 13,348.17. Meanwhile, WTI Crude Oil futures gained 6.8% to rise above $100 per barrel.
At the end of its two-day policy-setting meeting, the central bank revealed Wednesday that it will lift the benchmark Federal Funds Rate by 0.25%, to a target range of 0.25% to 0.50%. The move was in line with what market participants had anticipated after Fed Chair Jerome Powell indicated in Congressional testimony earlier this month a 25 basis-point bump was distinctly possible.
“By raising interest rates, the Federal Reserve has begun the process of unwinding their pandemic-era stimulus measures in an effort to tame inflation,” Bankrate chief financial analyst Greg McBride said in a note. “This isn’t a one-and-done but the start of a series of rate hikes for the remainder of this year and well into next.”
The Fed also unveiled in its updated Summary of Economic Projections, or “dot plot,” which reflects the individual economic projections of policymakers on the Federal Open Market Committee, that the median member anticipates up to six more rate hikes in 2022, which would bring rates 1.75% higher at the end of this year. Before Wednesday’s decision, the benchmark interest rate was deliberately held near zero since mid-2020 as part of the Fed’s easy-money policies used to keep financial conditions running smoothly during the pandemic.
“The Fed didn’t rock the boat much,” LPL Financial chief market strategist Ryan Detrick said. “Yes, they lowered economic expectations in 2022 while also increasing inflation, but much of that was already priced into things. Overall, they still see strong growth, which helps support the recovery.”
Although the key decision provided some clarity to investors who for months have awaited for the central bank to take steps forward on tightening monetary conditions, the Fed’s path forward remains muddied by geopolitical turmoil in Eastern Europe. War in Ukraine and penalizing sanctions against Russia for its invasion of the country have raised uncertainty in recent weeks over the conflict’s toll on the global economic picture.
The Fed acknowledged in a statement that came out of its meeting that implications for the U.S. economy are “highly uncertain” but likely to worsen already decades-high inflationary pressures.
“Playing catch up is the theme that Fed officials signaled to markets today as the narrative has shifted from normalizing monetary policy to laying the groundwork for a more restrictive policy and moving beyond neutral,” Allianz Investment Management senior market strategist Charlie Ripley said in commentary.
Elsewhere in markets, shares of Warren Buffett’s Berkshire Hathaway closed at $500,000 for the first time on Wednesday. The price underscored Berkshire’s status as a defensive stock at a time markets have been roiled by economic and geopolitical uncertainty.
Berkshire’s Class A shares have advanced 10% in 2022, even as the S&P 500 is down about 12% year-to-date. Prior to a relief rally on Wednesday, the benchmark index on Tuesday (the 50th trading day of the year) locked in its 6th worst start to a year ever, data from LPL financial reflected. The silver lining? The previous five worst starts were followed by notable gains, with an average gain for the rest of the year of 36%, with the exception of only 2001.
“Although we aren’t expecting 36% gains the rest of this year, it does suggest that things might be quite bad now, but we’ve been here before and we’ve seen stocks come back way more than expected,” LPL’s Detrick said.
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11:13 a.m. ET: Mortgage rates top 4%
Mortgage rates soared to their highest level since May 2019 this week, following a sharp increase in 10-year Treasury yield.
The rate on the average 30-year fixed rate mortgage jumped to 4.16 %, up from 3.85% a week ago, according to Freddie Mac. The 15-year fixed rate — a common refinance option — also surged, averaging 3.39% from 3.09% last week.
The more than quarter-point hike in rates dealt s a blow to homeowners who may have waited too long to refinance their loan and presents an additional setback for buyers who are facing some of the worst affordability conditions as prices grow higher amid low inventory on homes for sale.
“The potent fuel that propelled real estate markets to new highs over the past couple of years is evaporating,” George Ratiu, Realtor.com manager of economic research, said.
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10:49 a.m. ET: Amazon closes purchase of MGM movie studio
Amazon (AMZN) announced Thursday that the online retail giant has closed a $8.5 billion deal to buy MGM as the company works to draw in consumers through more video streaming.
“We welcome MGM employees, creators, and talent to Prime Video and Amazon Studios, and we look forward to working together to create even more opportunities to deliver quality storytelling to our customers,” the company said in a statement, signaling there would be no layoffs following the transaction.
The decision to close comes after a deadline passed for the U.S. Federal Trade Commission to challenge the deal. Amazon first announced plans to buy the company in May 2021, indicating MGM offered a trove of content to draw consumers to its fast-shipping and streaming club Prime.
Amazon was up 0.7% to $3,082.58 per share as of 10:45 a.m. ET.
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10:37 a.m. ET: Buffett snaps up more shares of Occidental Petroleum
Warren Buffett’s Berkshire Hathaway Inc. purchased 18.1 million additional shares of Occidental Petroleum Corp. (OXY), bringing the company’s stake in the oil giant to 14.6%.
Berkshire bought shares between Monday and Wednesday at prices ranging from $52.99 to $55.38, according to a company filing.
The move comes as soaring oil prices amid the war in Ukraine buoy the U.S. oil conglomerate.
OXY shares were up more than 7% to trade at $56.73 a piece as of 10:34 a.m. ET. Meanwhile, Berkshire Hathaway’s Class A shares were priced at about $508,135.34 after closing at $500,000 for the first time on Wednesday.
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9:30 a.m. ET: Stocks open lower following first interest rate increase since 2018
Here were the main moves in markets as of 9:30 a.m. ET:
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S&P 500 (^GSPC): -13.81 (-0.32%) to 4,344.05
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Dow (^DJI): -126.25 (-0.37%) to 33,936.85
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Nasdaq (^IXIC): -79.61 (-0.59%) to 13,356.94
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Crude (CL=F): +$6.42 (+6.76%) to $101.46 a barrel
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Gold (GC=F): +$33.80 (+1.77%) to $1,943.00 per ounce
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10-year Treasury (^TNX): -3.2 bps to yield 2.1560%
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9:03 a.m. ET: New U.S. home construction rebounds to strongest pace since 2006
U.S. housing starts in February rose to the strongest pace since 2006, pointing to better success by homebuilders navigating material and labor snafus during the month.
Residential starts jumped 6.8% last month to a 1.77 million annualized rate, according to data out of Washington out Thursday. Applications to build, a measure of future construction, abated to an annualized 1.86 million units but remained elevated overall.
Economists surveyed by Bloomberg estimated a pace of 1.7 million for housing starts in February.
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8:30 a.m. ET: Jobless claims fall to 214,000 in latest weekly data
Applications for unemployment insurance fell in the latest weekly data to extend a broader trend downward after surging COVID-19 infections earlier this winter briefly disrupted the labor market’s recovery to start the year.
The Labor Department latest weekly jobless claims report showed 214,000 claims were filed in the week ended March 12, coming in better than the 220,000 economists surveyed by Bloomberg had expected.
Jobless claims came in below 250,000 for a seventh consecutive week and hovered around pre-pandemic levels. Continuing claims, which track the total number of individuals claiming benefits across regular state programs, have held well below levels from even before the pandemic, coming in under 1.5 million for four straight weeks now compared to an average of around 1.7 million per week in 2019.
Although COVID’s impact on the labor market has appeared to ease, the economic toll the war in Eastern Europe may have remains unclear.
“Staggeringly high inflation is set to go higher in forthcoming reports because of impacts from Russia’s invasion of Ukraine and continuing supply chain disruptions including in China,” Mark Hamrick, senior economic analyst at Bankrate, wrote in an email. “These higher costs crimping household budgets risk dampening consumer discretionary purchases. It remains to be seen how much this could negatively affect the job market in the months to come.”
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7:03 a.m. ET: Futures slip, oil rises as investors continue to weigh rate hike
Here’s how markets fared ahead of the open Thursday
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S&P 500 futures (ES=F): -9.00 points (-0.21%) to 4,349.00
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Dow futures (YM=F): -67.00 points (-0.20%) to 33,992.00
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Nasdaq futures (NQ=F): -32.00 points (-0.23%) to 13,921.00
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Crude (CL=F): +$4.20 (+4.42%) to $99.24 a barrel
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Gold (GC=F): +$35.20 (+1.84%) to $1,944.40 per ounce
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10-year Treasury (^TNX): +2.8 bps to yield 2.1880%
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6:02 p.m. ET Wednesday: Futures tick up after stocks close higher following Fed decision
Here’s where stock futures were ahead of the overnight session Wednesday:
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S&P 500 futures (ES=F): +8.25 points (+0.19%) to 4,366.25
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Dow futures (YM=F): +51.00 points (+0.15%) to 34,110.00
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Nasdaq futures (NQ=F): +29.25 points (+0.21%) to 13,982.25
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Crude (CL=F): +$0.30 (+0.32%) to $95.34 a barrel
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Gold (GC=F): +$17.00 (+0.89%) to $1,926.20 per ounce
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10-year Treasury (^TNX): +2.8 bps to yield 2.1880%
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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