Wall Street in the red after modest Fed rate hike

The New York Stock Exchange suddenly eased off at the end of the session on Wednesday, reacting to a modest rate hike by the Fed, made less aggressive vis-à-vis inflation because of the banking crisis.

The Dow Jones index lost 1.63% to 32,030.11 points, the technology-dominated Nasdaq dropped 1.60% to 11,669.96 points and the S&P 500 fell 1.65% to 3,936. .97 points.

The Central Bank raised rates by just a quarter of a percentage point and signaled that it only envisages one more such hike in the near term.

Overnight rates are now in the range of 4.75% to 5.00%. Inflation hovered at 6% for the year in February, according to the CPI consumer price index.

At the same time, Fed Chairman Jerome Powell sought to reassure the financial world about the recent banking crisis by indicating that the money of American savers was “safe” and that the banking system remained sound.

The recent turmoil has seen two American regional banks, Silicon Valley Bank and Signature Bank, collapse, while in Switzerland, Credit Suisse had to be bought out in extremis and at knockdown prices by its competitor UBS.

On the front of rates and inflation, “the press release was rather + dove +”, that is to say in favor of a more flexible monetary policy, indicated Peter Cardillo of Spartan Capital Securities. But Jerome Powell “also said that it was difficult to predict a recession”, he nuanced.

This more lax tone, briefly welcomed by the stock market indices in session, finally weighed on Wall Street, which sees it as a way for the Fed to compensate for the tightening of financial conditions caused by the banking crisis, noted for his part Karl Haeling of LBBW .

“Financial conditions have tightened and probably more than traditional indicators show,” Powell said. The Committee statement meanwhile warned that the recent banking crisis was “likely (…) to weigh on economic activity”.

The head of the institution also stressed that the Fed was “committed to learning the lessons of the episode” banking and warned that more regulation and supervision are needed.

“As soon as we talk about more regulation, it’s a negative point for equities,” noted Peter Cardillo.

The bond market welcomed the Fed’s moderate tone, with yields on 10-year Treasury bills easing to 3.44% from 3.60% the previous day. As for the dollar, it collapsed by nearly 1% against the euro.

As for values, the securities of American regional banks which had rebounded strongly the day before, have plunged again. Thus First Republic lost 15.47% and Western Alliance Bancorporation almost 5%.

California bank PacWest, which announced on Wednesday that its deposits had shrunk by 20%, saw its shares fall 17.12% to 10.12 dollars.

Of the eleven sectors of the S&P, that of banks (-2.44%) and real estate were the red lanterns.

The very volatile action and mascot of the GameStop small carriers jumped 35.18%.

The video game distributor made its first profit in two years in the fourth quarter, but more because of cuts in its operating costs than thanks to the health of its declining sales.

The company specializing in space launches for small Virgin Orbit satellites, in difficulty a few months after the failure of a major operation, soared 33.12% to 59 cents.

The company, whose operations were put on “pause” by British billionaire Richard Branson last week “in order to preserve its capital”, plans to resume activity on Thursday.