Nasdaq, S&P trim losses, Boeing helps Dow as market digests Fed's hawkish signals

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Gains in energy and industrial stocks helped Wall Street’s major indices climb off their session lows on Thursday, after a steep selloff a day earlier on Federal Reserve chair Jerome Powell’s comments pointing to a higher terminal rate with smaller hikes.

By mid-day, the tech-heavy Nasdaq Composite (COMP.IND) was down 1.06% to 10,413.27 points, after falling as much as 2% earlier. The benchmark S&P 500 (SP500) had lost 0.53% to 3,739.89 points. An extended rally in shares of Boeing from the previous session helped cap losses in the Dow (DJI), with the blue-chip index hovering just above the flatline at 32,158.01 points.

Six of the 11 S&P sectors were trading in the red, with Technology the top loser. The Energy sector rose more than 2% while Industrials also climbed, helping the S&P 500 pare its losses.

Rates jumped, putting exchange traded funds tied to the movement of Treasury yields under pressure. The 10-year Treasury yield (US10Y) was up 9 basis points to 4.15%. The 2-year Treasury yield (US2Y) – which is seen to be more sensitive to the Fed’s moves – was up 13 basis points to 4.70%, at levels not seen since 2007.

The dollar index (DXY) gained 1.4%.

All three indices had slumped late in the previous session after Powell said the central bank had some ways to go before it could consider pausing rate hikes. The Fed chief also said that the terminal rate could be higher than earlier expected.

“The Fed failed to deliver the much-awaited pivot. The 2pm statement kept the hope alive, after the FOMC inserted a reference to policy lags, which at first glance appeared like a dovish tilt… Any ambiguity in the statement was resolved by Powell during the press conference, which in our view tilted decisively hawkish,” Jefferies chief economist Aneta Markowska said in a research note published on Wednesday.

After the latest commentary, market participants are seeing signs of a terminal rate of at least 5% and as much as 5.75% for the middle of next year.

“Our Fed call remains unchanged for now. We continue to assume another 75bp hike in December, mainly because we don’t think the labor market and inflation data will slow sufficiently to justify a downshift… We believe that a 5.1% funds rate is high enough to slow growth materially next year, and thus is a reasonable place to pause,” Markowska added.

Turning to economic news, the number of Americans filing for weekly jobless claims fell by 1K to 217K, versus a forecast of 222K. The data pointed to continued strength in the U.S. labor market.

The September ISM services PMI Index fell more than expected. September factory orders rose in-line with forecasts. Factory orders moved higher by 0.3%.

Earnings news was also in focus. Streaming giant Roku slumped after a downbeat quarterly guidance. Chipmaker Qualcomm also issued disappointing outlook and highlighted rising product inventories. Vaccine maker Moderna posted a big third quarter miss. Oil producer ConocoPhillips rose on strong earnings and a raised dividend and buyback program.

Lincoln National was the top S&P 500 loser after Morgan Stanley downgraded the stock following its results.

In global news, the pound fell against the dollar after the Bank of England hiked interest rates by 75 basis points, the largest increase in 33 years.

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