Stocks Tumble Giving up Yesterday’s Fed-Induced Gains…..

U.S. equities tumbled in a sharp reversal, wiping out the gains made during yesterday’s Fed-induced rally that came following its monetary policy decision and subsequent comments from Fed Chair Powell. The Central Bank upped its target for the fed funds rate by 50 basis points yesterday, as widely expected, and Powell quelled any notion of more-aggressive hikes in the future. However, investors assessed the likelihood of additional rate increases to come, amid the tightening in financial conditions and recession fears. Moreover, events surrounding the continued war in Ukraine remained in focus, after OPEC and its allies, known as OPEC+, agreed to another modest increase in production amid concerns over weaker demand from China and the European Union’s proposal for more sanctions against Russian crude. The economic calendar was lighter today, but initial jobless claims came in above forecasts, and preliminary Q1 non-farm productivity tumbled. Meanwhile, earnings season continued to roll on, with eBay just edging estimates but cutting its outlook, while Conoco-Phillips posted a near four-fold increase in quarterly profits on the back of the surge in oil prices. Treasuries were lower, as yields spiked, and the U.S. dollar resumed its rally, while WTI crude oil edged higher, and gold gained ground. Europe faded late and closed mostly lower, following the rate decisions from the Fed and the Bank of England, while stocks in Asia were mixed in continued low volume with markets in South Korea and Japan closed for a holiday.

The Dow Jones Industrial Average fell 1,063 points (3.1%) to 32,998, the S&P 500 Index tumbled 153 points (3.6%) to 4,147, and the Nasdaq Composite plunged 647 points (5.0%) to 12,318. In heavy volume, 5.0 billion shares of NYSE-listed stocks were traded, and 5.2 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.45 to $108.26 per barrel. Elsewhere, the gold spot price traded $10.20 higher to $1,879.00 per ounce, and the Dollar Index was 0.9% higher at 103.48.

Weekly initial jobless claims came in at a level of 200,000 for the week ended April 30, versus the Bloomberg estimate calling for 180,000, and versus the prior week’s upwardly-revised 181,000 level. The four-week moving average rose by 8,000 to 188,000, and continuing claims for the week ended April 23 declined by 19,000 to 1,384,000, versus estimates of 1,399,000. The four-week moving average of continuing claims fell by 36,250 to 1,417,000.

Preliminary Q1 nonfarm productivity (chart) fell by 7.5% on an annualized basis, versus expectations of a 5.3% decline, and following the favorably-revised 6.3% drop seen in Q4. Unit labor costs increased by 11.6%, above forecasts of a 10.0% rise. The figure increased sharply from Q4’s upwardly-adjusted 1.0% increase in unit labor costs.

The markets continue to digest the Federal Open Market Committee’s (FOMC) decision to raise the target for the Fed funds rate by 50 basis points (bps), its biggest increase since 2000, as well as its statement and remarks from Chairman Jerome Powell. The Committee noted that while job gains have been robust, the unemployment rate has declined substantially, and household spending and business fixed investments continue to be strong, “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures”. However, even as Powell mentioned that 50-bp increases should be on the table for the next two meetings, he quashed fears of more aggressive action in the Q&A session by saying that 75-bp increases are not something the Fed is actively considering.

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