The stock market faced a significant setback on Wednesday as Big Tech stocks experienced a sharp decline, leading to the worst loss in months for Wall Street. The market’s losses were amplified after the Federal Reserve indicated that it is unlikely to cut interest rates in March, disappointing many traders who had hoped for a rate cut.
The S&P 500 dropped 1.6%, marking its worst day since September. Throughout the day, the market fluctuated between more moderate and sharper losses as traders adjusted their expectations for the timing of the Fed’s interest rate reduction. The Nasdaq composite, driven down by the decline in Big Tech stocks, experienced a loss of 2.2%. In contrast, the Dow Jones Industrial Average, which has less exposure to the tech sector, fell by 0.8%.
Despite reporting stronger profit and revenue for the latest quarter than analysts had expected, Alphabet saw a significant drop in its stock price, falling 7.5%. Analysts have expressed concerns about the company’s advertising revenue trends. Microsoft also experienced a decline of 2.7% despite delivering better-than-expected earnings. Tesla, another prominent tech stock, fell by 2.2% following a ruling in Delaware that denied its CEO, Elon Musk, a compensation package.
Last year, the “Magnificent Seven” tech stocks played a crucial role in driving the S&P 500’s record-breaking returns. Three more of these stocks, Amazon, Apple, and Meta Platforms (parent company of Facebook and Instagram), are scheduled to release their quarterly results soon, and expectations remain high.
Investors had been optimistic about the stock market’s rally, primarily driven by hopes that a cooling in inflation would lead to multiple interest rate cuts by the Federal Reserve. However, the Fed’s decision to keep its main interest rate steady dashed those expectations. Fed Chair Jerome Powell emphasized the need for greater confidence in sustainable inflation decline before considering rate cuts.
While the stock market experienced a substantial decline, Powell expressed overall confidence in the economy. Cutting rates too soon could potentially ignite inflation, while acting too late could harm the economy and job market. The Fed aims to strike the right balance while closely monitoring economic data.
In response to the Fed’s announcement, Treasury yields in the bond market fluctuated. The S&P 500 closed 79.32 points lower, the Dow dropped 317.07 points, and the Nasdaq slumped by 345.89 points.
Throughout global stock markets, there was a sharp decline in Chinese indexes due to concerns about the country’s economic recovery and the challenges faced by heavily indebted property developers. In other parts of Asia, stock markets were mixed, while in Europe, they experienced modest declines.
Frequently Asked Questions:
Q: What led to the significant setback in the stock market?
A: The stock market faced a significant setback due to a sharp decline in Big Tech stocks and the Federal Reserve indicating that it is unlikely to cut interest rates in March.
Q: How did the S&P 500 perform during this period?
A: The S&P 500 dropped 1.6%, marking its worst day since September.
Q: How did the different stock indexes perform?
A: The Nasdaq composite, driven down by the decline in Big Tech stocks, experienced a loss of 2.2%. The Dow Jones Industrial Average, which has less exposure to the tech sector, fell by 0.8%.
Q: Why did Alphabet’s stock price drop despite reporting stronger profit and revenue?
A: Alphabet’s stock price fell 7.5% due to concerns about the company’s advertising revenue trends.
Q: What other tech stocks experienced declines?
A: Microsoft experienced a decline of 2.7% despite delivering better-than-expected earnings, and Tesla fell by 2.2% following a ruling that denied its CEO, Elon Musk, a compensation package.
Q: What were investors optimistic about prior to the stock market decline?
A: Investors were optimistic about hopes of multiple interest rate cuts by the Federal Reserve, driven by a cooling in inflation.
Q: How did the Federal Reserve’s decision impact the stock market?
A: The Federal Reserve’s decision to keep its main interest rate steady dashed expectations of rate cuts, leading to the stock market decline.
Q: What was Fed Chair Jerome Powell’s stance on interest rate cuts?
A: Fed Chair Jerome Powell emphasized the need for greater confidence in sustainable inflation decline before considering rate cuts.
Q: What happened to Treasury yields in response to the Fed’s announcement?
A: Treasury yields in the bond market fluctuated in response to the Fed’s announcement.
Q: How did global stock markets perform during this period?
A: Chinese indexes experienced a sharp decline due to concerns about the country’s economic recovery and challenges faced by heavily indebted property developers. Other parts of Asia had mixed stock market performance, while Europe experienced modest declines.
Definitions:
1. Big Tech stocks – Refers to the large technology-based companies, such as Alphabet (Google), Microsoft, Apple, Amazon, Facebook, etc.
2. Interest rates – Refers to the cost of borrowing money or the return on investment. When interest rates are cut, it becomes cheaper to borrow money, which can stimulate economic activity.
3. S&P 500 – Refers to a stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States.
4. Nasdaq composite – Refers to a stock market index that includes stocks listed on the Nasdaq stock exchange, particularly technology companies.
5. Dow Jones Industrial Average – Refers to a stock market index that measures the performance of 30 large, publicly owned companies in the United States.
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