Market Snap: At the New York close: S&P 500 down 1.1% at 1882.95. DJIA down 1.4% at 15944.46. Nasdaq Comp down 2.2% at 4468.17. Treasury yields mixed; 10-year rose 0.007 percentage points to 2.003%. Nymex crude oil up 2.7% at $32.30. Gold down 0.5% at $1,116.10/ounce. WSJ Dollar Index up 0.02% to 91.37.
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How We Got Here: The market was betting the Fed would get policy-shamed into backing off its rate-hike regime. That bet did not pay off on Wednesday.
U.S. stocks fells sharply after the Federal Reserve concluded its January policy meeting with a statement that acknowledged all the world’s problems, but reiterated the bank’s confidence in the economy, keeping it on-track to raise rates in March (should it decide then to do so).
“The Fed remains relatively optimistic about the outlook of the economy,” Stifel economist Lindsey Piegza noted. The bank is encouraged by the labor market, and keeps expecting that inflation will pick up as soon as the oil market stops collapsing. Even with signs of slow growth, and the tumultuous markets, “the Fed is eager to continue along with additional rate hikes, the second potentially coming as early as March.”
After three weeks of a global selloff, and after the ECB’s Mario Draghi almost dared the Fed to stay the course, the bank mostly chose to stay the course. If many in the market were openly questioning whether the Fed made a mistake by raising rates in December, the bank’s answer today was curt: no.
Coming Up: The USD/JPY may show only a limited reaction after the FOMC wraps up its two-day policy meeting, as investors focus on the Bank of Japan policy decision Friday, says Shinichiro Kadota, vice president of research at Barclays in Tokyo. “As investors [focus] more on the BOJ meeting this time, we would see the dollar-yen pair to show only a limited reaction [to the Fed statement],” says Kadota. The BOJ will likely revise down its inflation outlook, says Kadota, but he says the BOJ will also likely leave its monetary policy unchanged. In addition, the BOJ also will unlikely to follow the approach of European Central Bank chief Mario Draghi to give a signal that easing is on the horizon in March, he says.
What You Missed Overnight
Fed Doesn’t Rule Out March Rate Rise Despite Cautious Outlook The Federal Reserve signaled renewed worry about financial-market turbulence and slow overseas economic growth but didn’t rule out raising short-term interest rates in March.
Stocks Slip as Fed Signals Renewed Worry U.S. stocks turned lower Wednesday after the U.S. Federal Reserve raised concerns about the economic outlook but didn’t rule out a March rate increase.
Oil Surges Despite Big Rise in Stockpiles Oil prices surged to gains after government data Wednesday showed last week’s addition to storage wasn’t as large as industry estimates suggested and speculation continued about output cuts from the world’s leading exporters.
Libor Brokers Acquitted of Fraud in London Trial A jury acquitted six former brokers of fraudulently trying to manipulate a widely used benchmark interest rate, dealing a major blow to a yearslong international investigation.
From The Wall Street Journal Asia
China Sharpens Efforts to Halt Money Outflow China is ramping up efforts to halt a flood of money leaving the country in response to an economic slowdown, moves that risk undermining Beijing’s ambition to elevate the yuan’s profile on the world stage.
Why China Should Welcome More Volatility When investors take economic or currency stability for granted, they take on too much risk in the belief nothing will change. That’s a lesson China has yet to take on board for the overall economy. Yet its long-term health would benefit from less state-directed stability and more market-driven volatility.
Malaysia Antigraft Agency Asks for Review of Decision to Clear Najib Razak Malaysia’s anticorruption agency said Wednesday it wants to review the decision of the country’s top prosecutor to drop investigations into how nearly $700 million was transferred to Prime Minister Najib Razak’s private bank account.
Tencent-Backed WeBank Raising Funds at $5.5 Billion Valuation Chinese Internet giant Tencent Holdings Ltd.’s online banking affiliate WeBank is close to raising fresh funds from investors including U.S. private-equity firm Warburg Pincus in a deal that values the year-old venture at more than $5 billion, people familiar with the matter said.
See Markets React to the Fed in 8 Charts The market reaction to the Federal Reserve was swift, but it was far from violent. The S&P 500 index initially rose slightly before slipping into negative territory. Ten-year Treasury yields and the dollar fell, while gold strengthened.
The Fed, the Markets, and the Great Guessing Game Today’s policy statement from the Federal Reserve is a Rorschach test for the market, in that the reaction to it will say more about the market than it does about the mindset of the Fed decision makers.
Apple the Latest Victim of Global Growth Worries Even the world’s biggest company can’t shake off concerns about global growth.
Market Crashes, Stock Scandals: Lessons From the U.S. Frontier The government massively overinvested in transportation and land development. The banking system was inefficient and corrupt. State governments gorged on debt, then defaulted on it with aplomb. The stock market was crooked, rife with cronyism and insider trading. Stocks shot up and down like yo-yos. China? No, that’s the U.S. in the 19th century,
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