Why Are Stocks Down Today?

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  • The Federal Open Market Committee will disclose the results of its two-day meeting on Wednesday.
  • Expectations call for a rate hike but at a slower pace due to softening inflation.
  • However, pessimists’ concerns must be accounted for in answering why are stocks down today.
why are stocks down today - Why Are Stocks Down Today?

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After a very encouraging start to 2023, the Monday blues hit the equities sector, thus posing the question, why are stocks down today? As with anything related to the U.S. capital market throughout the post-pandemic new normal, all eyes fixate on the Federal Reserve. In particular, its upcoming guidance about monetary policy may signal either a trajectory continuation or reversal.

Specifically, the Federal Open Market Committee (FOMC) — a committee with the aforementioned central bank that oversees the nation’s open market operations such as transactions involving U.S. Treasury securities — will disclose results on Wednesday regarding its two-day meeting. As Barron’s Randall W. Forsyth pointed out, investors will seek clarity on the Fed’s strategy for controlling inflation.

Broadly, analysts anticipate that the federal funds target will range between 4.5% to 4.75%, representing a 25-basis point increase. That’s likely baked into the books. For investors, it’s also a welcome deceleration from last year’s supersized interest rate increase, including four 75-basis point hikes.

However, the question about why are stocks down today centers on future Fed action. Parsing the FOMC’s prior language, ongoing increases in the target range implies at least two more 25-basis-point hikes. This will likely occur at the March 21-22 and May 2-3 confabs.

Nevertheless, the fed funds futures market only anticipates one rate increase based on its price action. Therefore, while the inquiry about why are stocks down today seemingly points to negative conditions at the surface level, the market itself appears to be gambling on an optimistic outlook.

Still, Why Are Stocks Down Today?

As another Barron’s article from Jacob Sonenshine affirmed, “[t]here’s no big secret about what’s driving [the recent equities rally]. Inflation has been falling, and the market is betting that the Fed will see enough improvement to stop hiking interest rates in the near future.” Still, Sonenshine originally published this remark on Friday.

At the present juncture, the indices conspicuously printed red ink ahead of the FOMC disclosure. So, why are stocks down today?

Economists at Brean Capital anticipate that Fed Chair Jerome Powell will not want to repeat the error of the 1970s. Back then, the central bank raised rates but then eased back monetary policy too quickly, sparking a reacceleration of inflation. “Powell will likely emphasize that rates will stay elevated for some time…despite the softer inflation data,” wrote Citigroup economist Andrew Hollenhorst.

Another headwind providing clarity to the discussion of why are stocks down today focuses on the technology sector. Notably, several big tech firms will disclose earnings results on Thursday, including Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN).

As InvestorPlace’s layoff tracker reveals, a slew of tech giants announced mass job cuts. Beyond the human toll that these pink slips impose, they also sparked social criticism, undergirding concerns of forward cohesiveness. Therefore, the setup for market bulls doesn’t point in a favorable direction.

“The risk/reward doesn’t seem great, heading into Fed day,” says Chris Harvey, chief U.S. equity strategist at Wells Fargo Securities. “Powell will have a continued focus on tighter for longer, and that’s not what the market wants to hear.”

Why It Matters

Finally, to get a more complete answer to the question, of why are stocks down today, investors should consider the yield curve inversion that occurred in 2022 and continued into the new year. Fundamentally, investors anticipate greater rewards for investing their money into longer-maturity Treasuries, states U.S. Bank. So, when investors are able to gain higher yields on shorter-term securities, it raises alarms.

Indeed, the Federal Reserve Bank of Chicago notes that based on historical data, “…the yield-curve slope becomes negative before each economic recession since the 1970s.” While much debate continues about why this relationship exists, it nevertheless underscores the broader discussion about why are stocks down today.

On the date of publication, Josh Enomoto did not have (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.


Article printed from InvestorPlace Media, https://investorplace.com/2023/01/why-are-stocks-down-today-16/.

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