Wall Street Closes Lower as Fed Strikes Hawkish Tone

November 03, 2022 11:39

As expected, the Federal Reserve increased interest rates by 75 basis points yesterday evening. But, as we noted in yesterday’s news, it was Fed Chair Jerome Powell’s comments after the announcement that were of particular significance.

Many traders and investors had speculated that the Fed would begin to slow the pace of future rate hikes, and were looking for any signals in Powell’s speech that this was the case. Unfortunately, these observers would have been left disappointed.

Despite the initial announcement leaving the door open for a slowdown in future rate hikes, Powell seemingly poured cold water on the prospect shortly after, stating that it was “very premature” to consider pausing and that rates were likely to go higher than had previously been expected.

The impact of these comments was fairly predictable. The US dollar strengthened, which had a knock-on negative impact on many commodities. Meanwhile, Wall Street closed the day sharply lower, with the Dow Jones, S&P 500 and Nasdaq sliding 1.55%, 2.50% and 3.36% respectively.

Big tech companies were hit particularly hard yesterday, with Tesla, Amazon, Netflix and Meta Platforms all dropping by 4.80% or more. Meta Platforms’ performance yesterday now takes its total year to date losses to a staggering 72%.

The tech stock’s demise this year has been largely the result of a string of disappointing earnings, the most recent of which came last week. In the third quarter, revenue dropped 4% year on year (YoY), and rising costs and expenses contributed to net income sinking 52%.

Of particular concern to investors was the amount of money being lost betting on the metaverse, at a time when economic turbulence is causing advertising revenue to dry up. In Q3 alone, Reality Labs, the company’s metaverse division, lost $3.7 billion, taking the division’s total losses in the first nine months of 2022 to $9.4 billion.

Whilst this high level of investment may eventually bear fruit, in the current climate of economic uncertainty, investors gravitate towards stocks which generate cash and shun those which burn it, hence the recent sell-off in Meta Platforms.

Nevertheless, active users of Meta’s family of popular applications rose. Both daily active users and monthly active users rose by 4% YoY to 2.93 billion and 3.71 billion respectively. That’s a big audience, and when advertising spending begins to recover, Meta Platforms is likely to benefit.

Depicted: Admirals MetaTrader 5Meta Platforms (Facebook) Weekly Chart. Date Range: 17 April 2016 – 2 November 2022. Date Captured: 3 November 2022. Past performance is not a reliable indicator of future results.

Following the Fed’s announcement yesterday, investors’ eyes will now wander to Friday’s US employment data and the latest US inflation figures next Thursday. If tomorrow’s job data shows a weakening economy, this is likely to fuel speculation that the Fed may take a more dovish stance at their next policy meeting.

Likewise, if next week’s consumer prices report shows a slowdown in inflation, this could prompt less aggressive future rate hikes from the Fed.

Meanwhile, today, at 12:00 GMT, the Bank of England (BoE) takes centre stage, with their latest interest rate decision. The expectation is that they will follow in the Fed’s footsteps with an increase of 75 basis points, in what would be their biggest rate rise since 1989.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.


Roberto Rivero
Roberto Rivero Financial Writer, Admirals, London

Roberto spent 11 years designing trading and decision-making systems for traders and fund managers and a further 13 years at S&P, working with professional investors. He has a BSc in Economics and an MBA and has been an active investor since the mid-1990s