Market Snapshot: Dow ends 500 points lower, Nasdaq falls 3.4% after Fed raises rates, Powell signals terminal interest rate will be higher than expected

What’s driving markets

The Federal Reserve on Wednesday approved the fourth straight jumbo increase in its benchmark interest rate, extending a rapid pace of hikes that brings the rate to the highest level in 15 years. For the first time, the central bank also signaled it would watch closely whether this rapid pace might eventually damage the economy with a “lag.”

By a unanimous vote, the Fed hiked its rate by 0.75 percentage points to a range of 3.75% to 4%. 

See: Fed approves another jumbo interest-rate hike, adds dovish language on way forward

Movement in the expected trajectory of borrowing costs have been a major driver of stocks in 2022. In its battle to combat inflation running at 40-year highs, the Fed has raised interest rates from zero in February to a range of 3% to 3.25%, a tightening of liquidity that dragged the S&P 500 index down 19.1% for the year to date.

See also: Live Markets Coverage

“Even if we see the Fed slow the pace of hikes, they are still hiking, the policy is still highly restrictive, front-end rates will still get worse before they get better, and risks of higher terminal rates are still very acute,” said Stephen Innes, managing partner at SPI Asset Management. “Sure we could see a knee jerk higher on stocks via a lower Fed glide path, but will it be sustainable?” he added.

See: Here’s how ‘Fed Day’ stock-market performance stacks up under Jerome Powell

Earlier Wednesday U.S. equity indexes traded lower Wednesday morning after payroll services firm ADP said the private sector added 239,000 jobs in October. Economists polled by the Wall Street Journal earlier forecasted an increase of 195,000 jobs.

“I think the ADP data was a bit more robust than folks thought,” said Timothy Holland, chief investment officer at Orion Advisor Solutions. “The market is really hoping that the Fed can credibly pivot to just a 50 basis point rate hike in December and then maybe even downshift from there in 2023,” according to Holland.

“You’ve seen some softness [in the economy], but you’re not really seeing it in the labor market necessarily. And can the Fed credibly downshift if you’re not getting softness on the jobs front? And that’s the big question,” Holland said.

Also helping support stocks was a well-received earnings report from chipmaker AMD
AMD,
+0.79%,
delivered after Tuesday’s closing bell. Companies reporting on Wednesday include Paramount Global
PARAA,
-11.12%,
Zillow
Z,
-2.51%
and eBay
EBAY,
-2.46%.

Meanwhile, in China, investors continued to bet on rumors that Beijing was considering relaxing its COVID-19 lockdown policy. The Hang Seng China Enterprises index
160462,
+2.79%,
which closed on Monday at a 17-year low having fallen about 40% so far in 2022, took its two-day rebound to 8.2%.

Separately, China has ordered a seven-day lockdown of the area around Foxconn Technology Group’s main plant in Zhengzhou, which houses an iPhone assembly plant and the world’s largest iPhone factory.

Companies in focus

Shares of Chegg, Inc.
CHGG,
+21.36%
surged 25% Wednesday after the online-learning platform reported fiscal third-quarter revenue and earnings that exceeded Wall Street analysts’ forecasts. Chegg reported net income of $251.6 million, compared with net income of $6.65 million in the year-ago quarter.

Boeing Company
BA,
+4.90%
jumped 6% after the planemaker’s CEO said the company could generate $10 billion in cash annually by mid-decade and expects to return cash to shareholders and will not need equity to get there after 2026.

Shares of Match Group Inc.
MTCH,
+5.63%
rose 8.9% after the online-dating company exceeded revenue expectations for its latest quarter and said that it would “accelerate” cost-control efforts.

Caesars Entertainment Inc.
CZR,
+1.69%
shares went up 6% after management on Tuesday revealed a measure of profit in its digital betting business turned positive last month, giving the business a chance to contribute to profit in the months ahead.

CVS Health Corp.
CVS,
+3.36%
stock gained 5% Wednesday, after the company announced a $5 billion settlement of opioid claims and third-quarter earnings blew past estimates. 

— Jamie Chisholm contributed to this article.