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NEW YORK — Big tech stocks tumbled Wednesday on the downside to high expectations, sparking a selloff on Wall Street. The market’s losses were compounded by the Federal Reserve’s indication that it was unlikely to cut interest rates in March, as many traders had expected.
The S&P 500 fell 1.6%, its worst day since September. Stocks oscillated between smaller and larger declines through a choppy afternoon as traders delayed bets on when the Federal Reserve would start easing key interest rates from their highest levels since 2001.
The market-leading Nasdaq Composite fell 2.2% as big tech stocks fell. The Dow Jones Industrial Average, which is less tech-heavy, fell a more modest 0.8%, or 317 points.
Alphabet, one of the most heavily weighted companies in the market, fell 7.5% despite reporting that its latest quarter’s profits and sales beat analysts’ expectations. Analysts have pointed to some worrying trends behind the scenes in how much money Google’s parent company makes from advertising.
But the bigger challenge may have been the high expectations the company faced after its stock price soared last year. Other big tech stocks that accounted for a disproportionate share of the S&P 500’s record rally struggled Wednesday in the face of similarly lofty expectations.
Microsoft fell 2.7% despite delivering better-than-expected profits and sales. Wedbush Securities analyst Dan Ives even called the quarterly report “a masterpiece that should hang in the Louvre.”
Tesla, another member of the so-called Magnificent Seven, fell 2.2%. A Delaware judge ruled a day earlier that the company’s CEO, Elon Musk, was not entitled to a landmark pay package previously awarded to him.
The Magnificent Seven was responsible for much of the S&P 500’s returns last year, and on Thursday three more members – Amazon, Apple, and Meta Platforms, parent company of Facebook and Instagram – will report their latest quarterly results. It’s planned. I have high expectations for them.
Elsewhere in the Magnificent Seven, stocks have soared to record levels on hopes that subdued inflation will persuade the Federal Reserve to cut interest rates several times this year. These rate cuts would ease pressure on the economy and encourage investors to pay higher prices for stocks.
But the Fed on Wednesday kept its key interest rate on hold, vowing that it “does not believe it is appropriate” to cut rates “until there is greater confidence that inflation is sustainably heading toward its 2% target.”
“We are in no way declaring victory,” Fed Chairman Jerome Powell said. He said it was unlikely the Fed would reach that level of comfort before its next meeting in March.
“It’s probably not the most likely case,” he said, and the stock plummeted in late trading.
But Powell also said Fed officials already have some confidence that day will come. They just need to see a few more months of data that supports sustained declines in inflation. “We’re confident,” he said. “It’s increasing, but I want to be more confident.”
Powell acknowledged that while the economy is “in good shape overall” at the moment, the Fed is in a difficult position because there are risks from acting both too early and too late. Cutting rates too soon could increase inflationary pressures, while cutting rates too late could cause unnecessary pain to the economy and job market.
“Given how strong the economy has been, the Fed could make a mistake by lowering rates at a slower pace than the market is pricing them in,” said Brian Jacobsen, chief economist at Annex Wealth Management. “They probably judge that there is a sex.”
Following the Fed’s announcement, bond yields in the bond market rose and fell. It had previously fallen following some weaker-than-expected reports on the economy.
Wages and benefits for U.S. workers grew slower than economists expected in the final three months of 2023, a report says. Although all workers want bigger raises, the colder-than-expected numbers could further allay one of the Fed’s big concerns: that too large wage increases will eventually create a vicious cycle that keeps inflation high. There is sex.
A separate report from the ADP Institute also suggested that hiring by non-government employers was weaker in January than economists expected. The Fed and Wall Street are hoping the job market will cool enough to keep inflation in check, but not enough to cause a recession. A more comprehensive employment report from the U.S. government is expected to be released on Friday.
The yield on the 10-year U.S. Treasury note fell to 3.92% from 4.04% late Tuesday. In October, it exceeded 5%, the highest level since 2007.
Overall, the S&P 500 fell 79.32 points to 4,845.65. The Dow Jones Industrial Average fell by 317.07 points to $38,150.30, and the Nasdaq fell by $345.89 to $15,164.01.
In overseas stock markets, indexes plunged again amid continued concerns about China’s slowing economic recovery and the plight of the country’s heavily indebted real estate developers.
Stocks were mixed elsewhere in Asia, with modest declines in Europe.
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