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Fed Rate Hike Fears Impact S&P 500 and Dow; Tech Stocks Still Shine

A looming rise in Federal Reserve interest rates sparks jitters in the stock market.

Federal Reserve
Federal Reserve

Federal Reserve's Stance Triggers Market Anxiety

The S&P 500 and Dow ended on a low note this Wednesday amid heightened worries over potential further interest rate hikes. The cause of this concern stems from Jerome Powell, the US Federal Reserve Chair, expressing that he doesn't foresee inflation reaching the central bank's target rate anytime soon. Speaking at a European Central Bank forum, Powell suggested that the Fed would likely raise rates further and did not dismiss the possibility of a rate boost at the next policy meeting due in July.

Market Reaction: Tech Stock Resilience Amid Rate Hike Concerns

According to preliminary data, the S&P 500 slid by 1.14 points, or 0.02%, concluding at 4,377.37 points. Meanwhile, the Dow Jones Industrial Average fell 63.90 points, or 0.19%, to 33,862.84. Despite the downward trend, the Nasdaq Composite managed to make gains, increasing 36.08 points, or 0.27%, to 13,591.75. Market players found a silver lining with technology stocks, which continued to perform well. Giants such as Apple, Tesla, Microsoft, and Alphabet remained significant contributors to the S&P's growth.

Tech Sector Dominates Amid Overall Market Slump

The tech sector, and particularly the AI segment, continues to show resilience. Michael Green, a portfolio manager at Simplify Asset Management, noted that this area of growth had raised valuations significantly compared to the rest of the market. However, not all tech shares fared well, with chipmaker Nvidia being a top drag after a Wall Street Journal report suggested the US might enforce new restrictions on AI chip exports to China.

Wall Street Projections Amid Economic Indicators

After breaking a losing streak on Tuesday due to encouraging economic data that eased fears of a potential U.S. recession, Wall Street is now expecting the Fed to increase rates in July. Traders currently see an 81.8% likelihood of the Fed raising interest rates by 25 basis points to a 5.25%-5.50% range in July, while holding steady through the end of 2023, as indicated by the CMEGroup's Fedwatch tool.

Upcoming Economic Data and Market Performance

Investors now turn their attention towards the forthcoming Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation measure, along with initial jobless claims data and the final reading of the first-quarter GDP. These indicators will help evaluate the current state of the US economy. The S&P banks index dipped in anticipation of the Fed's annual stress test results released after markets closed on Wednesday, determining capital reserves and availability for stock buybacks and dividends.

Spotlight on Individual Stocks: Netflix and General Mills

Among individual stocks, Netflix saw a rise after Oppenheimer increased its price target. Conversely, General Mills experienced a slump following the packaged food manufacturer's forecast of a full-year profit below analysts' estimates.