A pedestrian walks past an electronic stock board displaying Asian Indices in Tokyo, Japan. (Photographer: Tomohiro Ohsumi/Bloomberg)

U.S. Stocks Tumble as Bets on Dovish Fed Go Wrong: Markets Wrap

(Bloomberg) -- U.S. stocks careened to a 15-month low after Jerome Powell failed to quell investor angst that the Federal Reserve’s tightening policy will throttle economic growth.

The S&P 500 Index dropped 1.5 percent after policy makers raised rates for the fourth time this year and lowered their forecast for hikes next year to two from three. Markets had been priced for just one. Treasury yields slid and the dollar erased losses as Powell said the Fed’s balance sheet normalization would continue “on automatic pilot.”

U.S. Stocks Tumble as Bets on Dovish Fed Go Wrong: Markets Wrap

Investors had anticipated a less aggressive approach after U.S. stocks tumbled into a correction amid concern that global growth is slowing.

“This hike is a vote of confidence in our economy for 2018, but essentially that’s a wrap,” said Mike Loewengart, vice president of investment strategy for E*Trade Financial Corp. “We’re now in some uncharted territory as 2019 comes into focus.”

Amid the recent volatility in stocks and other risky assets, President Donald Trump had stepped up pressure on the central bank to avoid more tightening in the runup to the announcement. Powell said today that political considerations play no role in Fed policy.

The tech-heavy Nasdaq indexes underperformed Wednesday as Facebook Inc. tumbled more than 7 percent on mounting concerns over user privacy. FedEx Corp. sank 12 percent after its executives warned that signs of a global trade slowdown are emerging.

Beyond the Fed, trade and politics remain dominant themes. The U.S. Senate will vote as soon as Wednesday on a bipartisan spending bill to avoid a partial federal shutdown and keep the government funded until Feb. 8. Meanwhile, Treasury Secretary Steven Mnuchin said America and China are planning to hold meetings in January to negotiate a broader trade truce.

Elsewhere, the yield on benchmark Japanese notes slipped to within striking distance of 0 percent before a rapid turnaround as the surge in demand triggered a margin call. Asian shares were mixed following a disappointing market debut for SoftBank Group’s Japanese telecom business. The Stoxx Europe 600 Index snapped a four-day losing streak. Italian debt surged after the European Commission decided against launching a disciplinary procedure over the country’s budget.

Here are some events investors will focus on in the coming days:

  • The Bank of Japan’s monetary policy decision is due Thursday, followed by a briefing from Governor Haruhiko Kuroda. A Bank of England decision is also Thursday.

And these are the main moves in markets:

Stocks

  • The S&P 500 Index fell 1.5 percent at the close of trade in New York.
  • The Stoxx Europe 600 Index increased 0.3 percent.
  • The Nikkei-225 Stock Average fell 0.6 percent to the lowest since March.
  • The MSCI Emerging Market Index gained 0.2 percent.

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1 percent.
  • The euro rose 0.1 percent to $1.1376.
  • The Japanese yen fell 0.1 percent to 112.6 per dollar.
  • The British pound fell 0.1 percent to $1.2621.

Bonds

  • The yield on 10-year Treasuries fell five basis points to 2.77 percent.
  • Germany’s 10-year yield was little changed at 0.24 percent.
  • Britain’s 10-year yield fell one basis point to 1.27 percent.
  • Italy’s 10-year yield plunged 17 basis points to 2.77 percent.

Commodities

  • West Texas Intermediate crude increased 2.1 percent to $47.20 a barrel.
  • Gold fell 0.6 percent to $1,242.40 an ounce.

©2018 Bloomberg L.P.