S&P 500, Dow Decline on Worries of More Fed Hikes

The S&P 500 and Dow closed lower Wednesday on the prospect of further interest rate hikes after U.S. Federal Reserve Chair Jerome Powell said he did not see inflation falling to the central bank’s target rate “this year or next year.”

At a European Central Bank forum on Wednesday, Powell also said the Fed will likely raise rates further and did not rule out a boost at the next policy meeting scheduled for the end of July.

“The concern is about Powell’s comments that we’re just not done with the rate hiking cycle, that inflation is still too strong … the market has to accept that the Fed is not done hiking rates,” said Phil Blancato CEO Ladenburg Asset Management adding that Powell is “not wrong.”

Blancato also pointed to seasonal trends ahead of the July 4 U.S. Independence Day holiday “after an incredible first six months of the year for growth stocks” and said: “The market’s more than happy to take a breather here.”

According to preliminary data, the S&P 500 lost 1.14 points, or 0.02%, to end at 4,377.37 points, while the Nasdaq Composite gained 36.08 points, or 0.27%, to 13,591.75. The Dow Jones Industrial Average fell 63.90 points, or 0.19%, to 33,862.84.

Still, Apple Inc hit an all-time high during Wednesday’s session while Tesla Microsoft and Alphabet were also some of the S&P’s biggest boosts.

“The market is very focused on the only real source of growth which is the technology sector and specifically the AI sector, which has raised the valuation of that vector significantly versus the rest of the market,” said Michael Green, portfolio manager at Simplify Asset Management.

But chipmaker Nvidia lost ground and was a top drag for the benchmark after the Wall Street Journal reported the United States could impose new curbs on exports of artificial intelligence chips to China.

Wall Street had snapped a losing streak on Tuesday as upbeat economic data eased fears of an imminent U.S. recession, though it bolstered expectations that the Fed could hike rates in July.

Traders now see an 81.8% chance of the Fed hiking interest rates by 25 basis points to a 5.25%-5.50% range in July and expect the central bank to hold rates through the end of 2023, according to CMEGroup’s Fedwatch tool.

Investors are awaiting the Personal Consumption Expenditures (PCE) index reading, the Fed’s favored inflation gauge, initial jobless claims data and the final reading of first-quarter GDP later this week to assess the state of the U.S. economy.

The S&P banks index slipped ahead of the Fed’s annual stress test results after markets close on Wednesday. The test helps determine how much capital banks need to keep in reserve and how much they have for stock buybacks and dividends.

Netflix Inc, also one of the S&P’s biggest boosts, climbed after Oppenheimer raised it price target.

General Mills slid after the packaged food maker forecast full-year profit below analysts’ estimates.