Fed update weighs heavily on Wall Street, adding fuel to the dollar

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Stock trading on the New York Stock Exchange Wall Street

Wall Street’s three major indexes fell on Friday as investors worried about a more hawkish stance from the US Federal Reserve.
Image Credit: AP

NEW YORK: Wall Street’s three major indices fell on Friday as investors worried about a more hawkish stance from the US Federal Reserve, while the dollar posted its strongest gains in more than a year and oil prices continued their steady climb.

After starting the week near record levels, US stocks have fallen steadily since Federal Reserve officials predicted on Wednesday that interest rates could rise sooner than previously expected.

The Dow Jones Industrial Average fell 533.37 points, or 1.58%, marking the worst week for the leading index since January. The Standard & Poor’s 500 lost 55.41 points, or 1.31%, and the Nasdaq Composite Index lost 130.97 points, or 0.92%.

The MSCI World Stock Index, which measures stocks in 45 countries, fell 8.87 points, or 1.24%.

Fear of an early rate hike

Stocks were trending lower after Wednesday’s policy update from the Federal Reserve, but that drop became more sharp after comments Friday morning from St. Louis Fed President James Bullard, who said he believed the Fed could raise interest rates as soon as next year. .

Those comments were offset somewhat later in the day by Minneapolis Federal Reserve President Neel Kashkari, who said he didn’t see a rate hike until 2024.

The Federal Reserve confirmed that it plans to maintain the unprecedented monetary support until the labor market fully recovers, and that any acceleration of the exit of stimulus is due to the strong gains expected from the US economy’s exit from the pandemic.

But the prospect of early interest rate hikes helped push investors away from a stock market that was close to record levels at the start of the week.

“I’m not surprised to see the market sell off a bit.

“I’ve never been surprised, given how strong we’ve been for a long time, when you see some periods of profit taking,” said Tim Greskey, chief investment analyst at Inverness Counsell in New York.

Dollar Rise

The Federal Reserve’s stance provided fuel for the US dollar, as the dollar index, which measures the US currency against six major currencies, jumped 0.43% on Friday to 92.314, its highest price since mid-April. The index is on track for its strongest weekly gain in nearly 14 months, as investors seek some safety in the dollar from other currencies after a slight surprise from the Federal Reserve.

Oil pared its previous losses to add to its recent gains after reports that OPEC expected limited growth in US oil production this year.

Brent crude futures rose 43 cents, or 0.6 percent, to settle at $73.51 a barrel. US West Texas Intermediate crude rose 60 cents, or 0.8 percent, to $71.64 a barrel. Both benchmarks are headed for weekly gains of about 1.1%.

“Despite a full return to pre-pandemic life in the US, energy companies are cautious about keeping their balance sheets in order and will remain disciplined with respect to commitments on new wells,” wrote Edward Moya, senior market analyst at OANDA. “The oil market does not need to worry about oversupply concerns anytime soon and this keeps crude oil prices supported despite the broad sell-off in commodities.” Long-term US Treasury yields fell on Friday as the bond market digested the Fed news, with the yield curve flattening on betting that the Fed would move more quickly to address persistent inflation pressures. The last 10-year bond was at 1.445%.

The Federal Reserve had cast a shadow over gold as a safe haven this week. Spot gold is down 0.61% to $1,762.63 an ounce, with prices down about 5.7% for the week. US gold futures settled down 0.3% at $1,769 an ounce.

More to track …
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