Markets slip lower as Fed raises rates and signals more hikes next year

Dow was off 142, decliners over advancers 3-2 & NAZ slid back 85.  The MLP index stayed in the 218s & the REIT index fell 3+ to the 388s.  Junk bond funds were mixed & Treasuries saw only limited selling.  Oil rose 2+ to the 77s & gold finished down 1 to 1823 in volatile trading (more on both below). 

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The Federal Reserve raised its benchmark interest rate to the highest level in 15 years, indicating that the fight against inflation is not over yet despite some promising signs lately.  Keeping with expectations, the rate-setting FOMC voted to boost the overnight borrowing rate ½ a percentage point, taking it to a targeted 4.25-4.5%.  The increase broke a string of 4 straight 3-qtr point hikes, the most aggressive policy moves since the early 1980s.  Along with the increase came an indication that officials expect to keep rates higher thru next year, with no reductions until 2024.  The expected “terminal rate,” or point where officials expect to end the rate hikes, was put at 5.1%, according to the FOMC's “dot plot” of individual members’ expectations.  The new level marks the highest the fed funds rate has been since 2007, just ahead of the global financial crisis & as the Fed was loosening policy aggressively to combat what would turn into the worst economic downturn since the last recession.  This time around, the Fed is raising rates into what is expected to be a moribund economy in 2023.  Members penciled in increases for the funds rate until it hits a median level of 5.1% next year, equivalent to a target range of 5-5.25.  At that point, officials are likely to pause to allow the impact of the monetary policy tightening make its way thru the economy.  The consensus then pointed to a full percentage point worth of rate cuts in 2024, taking the funds rate to 4.1% by the end of that year.  That is followed by another percentage point of cuts in 2025 to a rate of 3.1%, before the benchmark settles into a longer-run neutral level of 2.5%.  However, there was a fairly wide dispersion in the outlook for future years, indicating that members are uncertain about what is ahead for an economy dealing with the worst inflation it has seen since the early 1980s. 

Fed raises interest rates half a point to highest level in 15 years

Long Covid has contributed to the deaths of more than 3500 people since the pandemic began, according to a report published by the Centers for Disease Control & Prevention (CDC).  This is the first official US2 estimate of how many people have died from the mysterious array of conditions that afflict people months after their initial Covid infection.  Long Covid played a role in less than 1% of the more than 1M Covid-19 deaths recorded from Jan 2020 - Jun 2022, according to the report from the CDC's National Center for Health Statistics.  CDC analysts examined death certificates from Jan 2020 - Jun 2022 that listed Covid as a contributing or underlying cause of death.  The analysts then looked more closely at these death certificates to identify language indicating long Covid played a role in the death.  The US had not implemented an official diagnostic code for long Covid at the time of the study.  As a result, the analysts chose common terms for the condition including “chronic Covid,” “long Covid,” “long haul Covid,” “long hauler Covid” & “post Covid” among others.  The authors said the report may underestimate the true number of deaths from long Covid because clinical guidance on how to identify & report the condition has changed over time.  This means the study may have missed other key terms used on death certificates that indicate long Covid played a role.  Long Covid deaths peaked at 3.8% of all Covid fatalities in Apr 2022. Seniors ages 75 & older accounted for about 57% of the 2490 long Covid deaths with detailed demographic information.  Scientists still do not fully understand what causes long Covid & public health experts are still trying to find out exactly how many people are impacted in the US.  There's no official medical definition of long Covid in the US yet, though it generally refers to a diverse array of symptoms that can persist for months after infection.

>Long Covid has contributed to more than 3,500 deaths in the U.S. since start of pandemic, CDC says

Tensions continue to escalate between the US & China as the Biden administration prepares to blacklist a prominent Chinese chip manufacturer, Yangtze Memory Technologies, along with 35 other companies based in the PRC, according to a new report.  The Commerce Dept plans to add China's largest memory chip maker to an "Entity List" early next week.  Being added to the list makes it difficult for companies to receive items from US suppliers.  Therefore, all 31 of these Chinese organizations had to prove within 60 days that their business activities did not put US national security at risk.  It is noted that China's gov did cooperate with the Commerce Dept in order to avoid the blacklist.  The move will likely further escalate tensions between the world's 2 largest economic superpowers amid global inflation & stagnation.  Moreover, Yangtze Memory is China's largest chip manufacturer, supplying American companies such as Samsung.  An official in the Commerce Dept noted in Nov that Yangtze & other Chinese companies were at risk of being blacklisted.  In Oct, nearly 3 dozen Chinese organizations were put on an unverified list by Commerce because authorities in the US could not prove these companies were not supporting China's military.

US to reportedly blacklist over 30 Chinese companies

Gold futures ended lowe, then fell even further after the Federal Reserve announced a 0.5 percentage point increase to its benchmark interest rate.  Gold for Feb fell $6 (0.4%) to settle at $1818 an ounce after ending yesterday at its highest since late Jun.  After the Fed announcement, which came after the settlement, prices were trading at $1812.  Prices for gold finished today’s session with a loss, then extended those losses into the electronic trading session after the Fed announced a hike in the fed funds rate of 50 basis points to 4.25-4.5% as expected.  Fed officials penciled in 5.25% as the top end for its benchmark rate.  That's higher than their forecast of 4.75% in Sep.   The FOMC’s decision to raise rates by 50 basis points, departing from the previous 4 increases of 75 basis points, was largely offset with its hawkish comments accompanying the announcement.  Those comments conveyed the Fed's continued concern about elevated levels of inflation & its desire to raise rates longer & to a higher level than previously forecasted.  That increases investor expectations of continued aggressive Fed monetary policy and pushing gold prices lower.  The Fed announcement will be followed by the latest rate decisions from the Bank of England & the ECB with both of them forced to raise rates, even if this increases the risk of recession in both regions.

Gold settles lower, extends losses after Fed decision

Oil futures finished higher, finding support after the Intl Energy Agency raised its 2022 & 2023 forecasts for oil demand growth.  Data from the Energy Information Administration revealed a 10.2M-barrel weekly rise in US crude inventories.  However, a decline in Gulf Coast exports due to a temporary disruption at the Houston Ship Channel contributed to the supply increase.  Oil prices modestly pared their gains after the Federal Reserve raised its benchmark interest rate by 0.5 percentage point & also penciled in 5.25% as the top end for its benchmark rate.  The fear is that the Fed's restrictive policy stance could ease the demand for oil & keep prices under wraps.  The US benchmark WTI crude for Jan rose $1.89 (2.5%) to settle at $77.28 a barrel, the highest finish since Dec 2.

Oil Futures End Higher as Traders Weigh Demand, Supplies and Fed Decision

This was a wild day for stocks.  Investors were bullish early on.  However, Powell's comments were not well received.  The ½ point increase in the interest rates was widely expected.  But the top end for the interest rate was not well received.  The immediate reaction was to sell stocks in the Dow & trading was choppy in the last of hour of trading.  Traders will have a lot to think about tonight & bullish thinking may have been reduced.

Dow Jones Industrials