Stocks spent most of Wednesday in positive territory, but were on a rollercoaster ride after the Federal Reserve, as expected, issued its third consecutive rate hike of 75 basis points.
The Fed’s rate hike has sparked much discussion among Wall Street pundits, with the focus on what the central bank plans to do next. Today’s decision lifted the Fed’s benchmark federal funds rate to between 3.0% and 3.25%, with projections from the 19 voting members of the Federal Open Market Committee (FOMC) targeting a range of 4, 25% and 4.5% by the end of the year – half a percentage point higher than where it stood in June. Doing the math, this means that rates still need to rise by 1.25% in the last two central bank meetings (in November and December).
“Today we heard and saw more of the same, and the market shouldn’t be too surprised given that the Fed and its officials have telegraphed that more big hikes are in store for the foreseeable future,” he said. said Mike Loewengart, head of model portfolio construction. at Morgan Stanley. “The market seems to have hoped beyond hope that it would hear a reference to an end to rate hikes on the horizon, but that’s certainly not what we have today.”
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And that, in turn, caused the major stock indexes to quickly turn from green to red immediately after the Fed’s announcement. However, the rat race was not over, with stocks temporarily bouncing back before ending lower. At the close, the Dow Jones Industrial Average was down 1.7% to 30,183, the S&P 500 Index was down 1.7% to 3,789, and the Nasdaq Compound had lost 1.8% to 11,220.
Other news on the stock market today:
- Small cap Russell 2000 returned 1.4% to 1,762.
- U.S. Crude Futures fell 1.2% to end at $82.94 a barrel.
- Gold Futures Contracts edged up 0.3% to $1,675.70 an ounce.
- Bitcoin barely budged, last seen at $19,002.41. (Bitcoin trades 24 hours a day; prices shown here are as of 4 p.m.)
- stitch correction (SFIX) was down nearly 7% at its session low after the online clothing retailer reported earnings, but eventually tipped to a 2.8% gain. In its fiscal fourth quarter, SFIX reported a 16% decline in year-over-year revenue, a 9% drop in active customers and a much higher operating loss of $99 million. to the loss of $20.7 million suffered a year ago. “While the business remains focused on the path back to profitability (downsizing, streamlining footprint, improving efficiency, etc.), we remain concerned about high inventory levels that may continue to impact SFIX’s flexibility, likely in the current fiscal year,” said Kunal Madhukar, analyst at UBS Global Research (Neutral). “So, with expectations now much lower and stocks trading at historic lows, we believe the continued uncertainty could keep investors on the sidelines until visibility improves.”
- General Mills (GIS) was another post-earnings gainer, jumping 5.7% after its results. In the first quarter, the Bisquick maker reported earnings of $1.11 per share on $4.7 billion in revenue, more than analysts expected. The company also raised its full-year guidance as strong sales growth is expected to offset macro headwinds. “While the pace was widely anticipated by investors we speak with, few expected the company to raise its guidance so early in the year,” said Goldman Sachs analyst Jason English. Still, the analyst maintained a sell rating on GIS.
Use dividend stocks as a defense
As the Fed is unlikely to cut rates soon, investors should continue to be defensive with their portfolios. “Recent data has confirmed the need for the Fed’s tough stance,” said Gargi Chaudhuri, chief investment strategist at iShares. The Fed has “strongly stated its intention” to shift its policy stance to a restrictive level to control inflation, and the idea that the central bank will “raise rates and cut them immediately in mid-2023 should now be re-hoarded along the beach chairs,” she adds. As such, Chaudhuri believes investors should “position defensively within equities given the higher risks of an economic downturn.” .
In addition to sectors like healthcare or utilities that are traditionally considered “safer” than others, we often tout the benefits of including dividend-paying stocks in your portfolio to protect against market uncertainty. . However, not all dividend stocks are created equal. Income investors looking to find high-quality names should start with Dividend Aristocrats, companies that have increased their payouts to shareholders for at least 25 consecutive years. There are also those high-dividend stocks offering yields of 5% or more, well above the current S&P 500 yield of 1.7%. The names featured here have strong fundamentals, generous yields, and the backing of the analyst community. Check them.