Wall Street Slips on Aggressive Rate Hike Worries

Wall Street Slips on Aggressive Rate Hike Worries
Raindrops hang on a sign for Wall Street outside the New York Stock Exchange in Manhattan in New York on Oct. 26, 2020. (Mike Segar/Reuters)

Wall Street’s main indexes slipped for the third straight day on Monday led by declines in health care and energy stocks as investors worried that another massive interest rate hike by the Federal Reserve could tip the U.S. economy into a recession.

Five of the 11 S&P 500 sectors were down in early trading. Health care stocks fell 1.5 percent, weighed by a 5.5 percent drop in the shares of Moderna Inc.

The energy sector slipped 1 percent as oil prices declined, pressured by expectations of weaker global demand and by U.S. dollar strength.

The S&P 500 and the Nasdaq logged their worst weekly percentage drop since June on Friday as markets fully priced in at least a 75-basis-point rise in rates during the week, with Fed funds futures showing a 21 percent chance of a whopping 100 bps increase.

Unexpectedly hot August inflation data last week also raised bets on increased rate hikes down the road, with the terminal rate for U.S. fed funds now at 4.48 percent.

“Markets are going to be looking for direction until the Fed meeting, there won’t be much trading action till then,” said Christopher Grisanti, chief equity strategist at MAI Capital Management in Cleveland.

The S&P 500 has lost 19 percent so far this year on worries of a central bank-induced recession amid recent warnings of slowing demand from delivery firm FedEx and an inverted U.S. Treasury yield curve.

“I think a recession is very likely. The Fed regards a recession as regrettable, but necessary to fight inflation,” Grisanti said.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 27 points, inching closer to a more than two-month high.

Focus will also be on new economic projections, due to be published alongside the policy statement at 2 p.m. ET on Wednesday.

Goldman Sachs cut its forecast for 2023 U.S. GDP late on Friday as it projects a more aggressive Fed and sees that pushing the jobless rate higher than it previously expected.

“We think a 100 bps hike would unnerve Wall Street ... and would increase the likelihood that the FOMC will eventually overtighten and lessen the possibility of achieving a soft landing,” Sam Stovall, chief investment strategist at CFRA, wrote in a note.

At 9:48 a.m. ET, the Dow Jones Industrial Average was down 107.48 points, or 0.35 percent, at 30,714.94, the S&P 500 was down 13.16 points, or 0.34 percent, at 3,860.17, and the Nasdaq Composite was down 42.42 points, or 0.37 percent, at 11,405.99.

A rebound in industrial stocks after a sharp drop on Friday helped cap losses on the indexes.

Tech heavyweights Apple Inc., Amazon.com, Alphabet Inc., and Microsoft Corp. fell between 0.3 percent and 0.6 percent.

Autozone Inc. rose 0.6 percent after the auto parts retailer posted upbeat quarterly sales and profit on steady demand and better inventory availability.

Declining issues outnumbered advancers for a 1.69-to-1 ratio on the NYSE and a 1.90-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week high and 18 new lows, while the Nasdaq recorded 13 new highs and 178 new lows.