The Federal Reserve lifted fed funds by 25 bps to a 3.75%–4.00% range, with all 12 voting members backing the move, while the dot plot pointed to at least one further increase this year; markets later priced a 50% chance of another hike in October. Risk pricing swung sharply during the press conference: the VIX was 16.25 at 2:30pm before jumping to 18.94, up 17%, as the 2-year yield rose 7 bps and the 10-year finished at 5.02%. Energy remained a source of inflation anxiety, with WTI settling at $102.10 a barrel, up 71% since the conflict began, while diesel stood at $6.30 a gallon, up 77%; gold fell and the dollar strengthened.
Market Reaction And Sector Performance
US equities closed lower across most benchmarks, with the Dow down 630 points (1.2%) and the S&P 500 off 33 points (0.5%) after testing 7,500, while the Nasdaq slipped 3 points and the Russell 2000 fell 11 points (0.4%). The Transports dropped 574 points (2.8%); the Equal Weight S&P 500 lost 46 points (0.5%) and the ‘Mag 7’ declined 41 points (0.1%). Of 11 S&P sectors, nine ended down—Financials fell 1.6%, Energy 2.8% and Communications 0.9%—while Tech and Healthcare each rose 0.1%; SOXX gained 0.7%, DRAM 0.6%, Aerospace & Defense 0.3% and Quantum Computing 0.4%, as SH rose 0.5%, DOG 1.2%, SARK 0.4% and SPXS 1.3%. By the next morning, the 10-year was 4.98% after a 3 bps move, the VIX was down 9.7% at 15.99, Brent had fallen 1.5% and WTI 1%, while gold was up $55; Housing Starts were expected up 6.7%, Building Permits down 1.5% and Pending Home Sales down 3.9% y/y, as European equities rose about 0.5% and the BoE held rates while striking a more hawkish tone. US futures showed the Dow up 360 points, the S&P up 65, the Nasdaq up 312 and the Russell up 32, with YTD gains of 10.3% for the S&P, 11.7% for the Nasdaq, 15.2% for the Russell and 10.5% for the Equal Weight S&P; the S&P ended at 7,552, down 34 points, with 7,511 cited as support and 7,800 as the prior high, while earnings season was flagged to begin with JPM and other banks on 13 October.
