U.S. equities suffered their largest one-day loss since January on Thursday as the IPO of Snapchat’s parent company, Snap Inc (NYSE:SNAP), soared 44% in its debut to dominate Wall Street’s attention with a valuation of $24 billion. That’s a lot of money for a self-identified “camera company” that cut its teeth on disappearing “sexting” pics and rainbow vomit filters.
Overall, it was a dramatic shift in attitude after Wednesday’s massive melt up that pushed the Dow Jones Industrial Average up and over the 21,000 level for the first time.
Aside from SNAP, investor sentiment was weighed down by more “Russian influence” headlines for the Trump White House and increasingly hawkish commentary from the Federal Reserve ahead of a speech by Fed Board Chair Janet Yellen on Friday. Futures market odds of another quarter point hike at the March policy meeting — less than two weeks away now — have pushed above 90%, well above the threshold that triggered rate hikes in December 2015 and December 2016.
A more aggressive pace of rate hikes is a huge change in the monetary policy stance that, frankly, isn’t getting the attention it deserves. Consider that the Fed has raised interest rates only twice in the past ten years, but is poised to accelerate that to two hikes in just three months. Taking the punch bowl away, are we?
In the end, the Dow lost 0.5%, the S&P 500 lost 0.6%, the Nasdaq Composite gave back 0.7% and the Russell 2000 ended the day lower by 1.3%. Treasury bonds weakened as rates moved higher, the dollar was broadly stronger on rate hike fears, gold lost 1.4% and oil fell 2.3% boosting the ProShares UltraShort Crude (NYSEARCA:SCO) recommended to Edge subscribers by 4%. Crude oil looks set for further weakness West Texas Intermediate drops below its 50-day moving average for the first time since November.
Defensive utility and telecom stocks led the way with gains of 0.7% and 0.1%, respectively. Financials and materials stocks were the laggards, down 1.5% and 1.1%, respectively. Abercrombie & Fitch Co. (NYSE:ANF) gained 13.9% thanks to a smaller-than-expected decline in comp-store sales and confident forward guidance. Monster Beverage Corporation (NASDAQ:MNST) gained 12.8% thanks to a fourth-quarter earnings beat on better sales and margins.
On the downside, Barnes & Noble, Inc. (NYSE:BKS) fell 9.1% on a quarterly earnings miss on a 8.3% drop in comp-store sales on lower traffic (weakest holiday season since 2005) and guidance of a 7% comp-store sales drop in 2017. Caterpillar Inc. (NYSE:CAT) fell 4.3% on reports federal agents have a search warrant related to tax issues. And Shake Shack Inc (NYSE:SHAK) fell 2.6% on weaker-than-expected comp-store sales growth and profitability headwinds.
Turning back to Fed speak:
- New York Fed President Dudley said the case for tightening had become a lot more compelling.
- San Francisco Fed President Williams said he expects a rate hike to receive a “serious consideration” at the March policy meeting.
- Fed Governor Brainard, one of the most dovish Fed policymakers, said continued removal of policy accommodation was likely to be appropriate soon citing positive momentum in incoming data, evidence of labor market near full employment, and rising inflation pressures.
- And Fed Governor Powell told CNBC earlier in the day that the case for a March rate hike had “come together” while reiterating expectations for three rate hikes in 2017.
Watch for more hawkishness as both Yellen and Fed Vice-Chair Stanley Fischer speak tomorrow.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
