The stock market is extending yesterday’s Federal Reserve-induced losses today with most major indices trending in the red. Why are stocks down?
Well, it seems the notion of further rate hikes and an ever-hawkish Fed has scared some investors away from the stock market. On Wednesday, Fed Chair Jerome Powell announced another 75 basis-point rate hike, the sixth hike of the year and the fourth of this magnitude. Powell also strongly hinted at further hikes to come, claiming the Fed has “a ways to go” before slowing down its hawkish narrative.
Rate hikes are generally a bearish signal for stocks. In September, the S&P 500 dropped 1.7% when the Fed approved its prior interest rate increase. It seems the same bears have taken over the markets this week. That’s especially true for high-growth tech stocks, which are continuing yesterday’s brutal losses.
Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META) and Netflix (NASDAQ:NFLX) all closed in the red today after shedding more than 4% of their respective share values on Wednesday. Interestingly, however, Tesla (NASDAQ:TSLA) stock — which fell almost 6% Wednesday — is currently enjoying a bit of a reversal. Shares of TSLA closed up by under 1%.
Not everyone’s losses were tempered, though. Roku (NASDAQ:ROKU) sunk as much as 15% after warning about steep economic pressure and weaker advertising sales. ROKU stock closed today down by more than 4%.
Tech and growth stocks tend to be highly leveraged — that is, more funded via debt — than their value-based counterparts. As such, notions of continually higher interest rates puts immediate bearish pressure on these companies. Not alone, however, the greater stock and bond markets are under duress following yesterday’s announcement.
Markets in Recovery Following Hawkish Fed Meeting
While growth stocks are still out of sorts, it seems other markets are starting to ease back down after Wednesday’s hawkish drama.
After dropping 2.5% Wednesday, the S&P looked like it was primed for another tumultuous day. However, it has since balanced out slightly, down by 1% at market close. The story for the Dow Jones Industrial Average is similar; it shed 1.55% on Wednesday but closed down today by slightly less than half a percent.
Meanwhile, the tech-centric Nasdaq Composite is still on losing streak. After dropping 3% on the Fed announcement, the index is still well in the red today. It closed down by 1.73%.
Interestingly, Treasury yields are also in flux right now. The 10-2 spread is still inverted, with the 10-year note heading towards a 4.2% yield and the more rate-sensitive 2-year bond trending over 4.7%. It’s abnormal for a shorter-length bond to offer a greater yield than its long-term equivalent, but that has unfortunately been much of the story this year.
Economists are closely watching the markets this week, hoping the Fed-induced deterioration will be contained going forward.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.