US stock indices collectively fell on Wednesday as the Federal Reserve raised interest rates as expected, but Chairman Jerome Powell's comments raised doubts among investors, dampening market risk appetite.
After the Fed's anticipated 25 basis point rate hike, the stock indices initially maintained an upward momentum as the policy statement removed previously implied language suggesting further rate hikes. Investors speculated that this hike could be the last in the current tightening cycle.
However, at a subsequent press conference, Powell said it was still too early to declare the end of the rate hike cycle, as he believes inflation remains high. This means the Fed's rate path remains uncertain, leaving investors unsure about what might happen next.
Wall Street had hoped this would be the last rate hike of the tightening cycle, but Powell dashed those hopes. Rate hikes have already caused a series of bank collapses in the United States, increasing the likelihood of an economic recession.
Annex Wealth Management Chief Economist Brian Jacobsen said Powell's statement was slightly hawkish, and officials were unwilling to provide a clear rate path as they wanted to retain monetary policy options. "In short, they don't know how things will unfold, so they're taking it one step at a time."
State Street Global Advisors Chief Investment Strategist Michael Arone believes the Fed is still walking a tightrope, with officials trying to balance credibility in combating inflation and a soft economic landing.
Meanwhile, a banking crisis and the debt ceiling deadlock continue to trouble investors. After the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank, PacWest Bancorp is now considering various strategic options, including a sale.
A White House assessment document released on Wednesday warned of severe consequences for the US economy if Congress does not raise the debt ceiling. A long-term default could lead to a "doomsday scenario" akin to the Great Recession, with 8.3 million people unemployed and the stock market plunging 45%.
Market Highlights:
At the close, the Dow Jones Industrial Average fell 270.29 points, or 0.80%, to 33,414.24; the Nasdaq fell 55.18 points, or 0.46%, to 12,025.33; the S&P 500 Index fell 28.83 points, or 0.70%, to 4,090.75.
All 11 sectors of the S&P 500 Index were down, with the energy sector falling 1.92%, the financial sector down 1.19%, the materials sector down 1.11%, the information technology/technology sector down 0.83%, and the healthcare sector falling the least at 0.11%.
U.S. stock industry ETFs were generally down, with the energy industry ETF falling 1.89%, regional bank ETF down 1.80%, banking industry ETF down 1.62%, financial industry ETF down 1.14%, technology industry ETF down 0.84%, daily consumer goods ETF down 0.82%, optional consumption ETF down 0.79%, global technology stock index ETF down 0.68%, while global aviation industry ETF rose 0.33%, and biotechnology index ETF up 0.67%.
Stock Performance:
Large technology stocks were mixed, with Amazon up 0.02%, Tesla up 0.19%, Microsoft down 0.33%, Google A up 0.09%, and Apple down 0.65%.
The oil and gas sector led the decline, with Marathon Oil down more than 5%, and Sunoco, Chevron, and ConocoPhillips down more than 2%. International oil prices continued to fall, extending the decline from the previous trading day, as the market worried that an economic recession would affect energy demand.
Semiconductor sector was broadly down, with AMD down more than 9%, Qualcomm and NXP down more than 2%, and Nvidia down more than 1%.
Financial groups and regional banks were down, with JPMorgan Chase down more than 2%, Wells Fargo down more than 9%, Comerica Bank down more than 4%, Westpac down 2%, Zions Bancorporation down 5.3%, and Alliance Western Bank down 4.4%.
Pharmaceutical giant Eli Lilly's stock price rose 6.7%, reaching a record high. Eli Lilly's CEO said the company expects its Alzheimer's drug, Donanemab, to be approved by the end of the year.
Icahn Enterprises fell 19.3% after US short-selling firm Hindenburg Research said in a report that billionaire Carl Icahn's company's valuation was significantly overestimated. Hindenburg claimed it was shorting Icahn Enterprises.
Popular Chinese concept stocks were mixed, with the NASDAQ Golden Dragon China Index down 0.24%. Nio rose more than 2%, Bilibili, Tencent Music, JD.com, and Vipshop were up more than 1%, while Weibo, iQiyi, and Futu Holdings saw a slight increase. Manbang Group fell more than 3%, NetEase down more than 1%, and Pinduoduo, XPeng Motors, Li Auto, Baidu, and Alibaba saw a slight decline.
Company News:
PacWest Bancorp Considers Various Strategic Options, Including Sale of the Bank
Following the collapse of several banks, another regional bank in the U.S. is on shaky ground. Insiders reveal that PacWest Bancorp, a regional bank in the U.S., has been considering various strategic options, including selling itself. PacWest has been working with a financial advisor and has been considering splitting up or raising capital. While open to a sale, the bank has not yet initiated a formal bidding process. The sale has not been smooth, as there are not many potential buyers interested in acquiring the entire bank, which includes a community bank called Pacific Western Bank and some commercial and consumer loan businesses. Insiders say potential buyers may also need to write off a significant amount of loan impairments. In after-hours trading, PacWest Bancorp's shares plummeted by over 53%.
Eli Lilly's Alzheimer's Drug Significantly Delays Cognitive and Functional Decline
On Wednesday, U.S. pharmaceutical giant Eli Lilly announced positive results from the phase 3 clinical trial of its Alzheimer's treatment, Donanemab. Eli Lilly stated that Donanemab met all trial objectives. In 1,182 patients with early-stage Alzheimer's disease, Donanemab slowed the clinical decline rate by 35% and reduced the decline in daily self-care abilities by 40% compared to a placebo. Almost half of the patients treated with Donanemab did not show disease progression within one year. Eli Lilly plans to submit approval to global regulatory agencies as soon as possible and expects to submit a marketing application to the U.S. Food and Drug Administration (FDA) by the end of June, with approval anticipated by the end of the year or early 2024.
Qualcomm Q2 Adjusted Revenue $9.27 Billion, Analysts Expected $9.09 Billion
Qualcomm's second-quarter adjusted revenue was $9.27 billion, beating analysts' expectations of $9.09 billion. Adjusted earnings per share for the second quarter were $2.15, in line with analysts' expectations. The company projects third-quarter revenue between $8.1 billion and $8.9 billion, below analysts' forecast of $9.25 billion. Adjusted earnings per share for the third quarter are expected to be between $1.70 and $1.90, lower than the analysts' estimate of $2.20.
TSMC and Partners Discuss Investing Up to €10 Billion in German
Chip Factory TSMC is in talks with partners to invest up to €10 billion ($11 billion) in a chip manufacturing plant in Germany, according to insiders. A joint venture between TSMC, NXP, Bosch, and Infineon is expected to have a budget of at least €7 billion, including state subsidies, but may ultimately approach €10 billion. In an emailed statement to Reuters, TSMC said it is still assessing the possibility of building a factory in Europe but declined to comment further.
