Stocks wipe out gains after Fed signals rate hike in March

The Dow, which had been up roughly 600 points, ends the session with a 130-point loss after the central bank spells out its plan for soaring inflation

Traders worked the floor of the New York Stock Exchange on Tuesday. Trading was volatile this week as investors monitored corporate earnings and awaited guidance from the Federal Reserve on rate hikes. (Ted Shaffrey/AP)

Stocks staged another late-day reversal Wednesday, giving up their gains and adding to the week’s breathtaking volatility after the Federal Reserve signaled that interest hikes are indeed around the corner.

After trading higher most of the day, the Dow Jones industrial average shed more than 600 points following the Fed’s policy announcement. It cut some of its losses to settle at 34,168.09, down 129.64 points, or about 0.4 percent. A day earlier, the blue-chip index limped out of a tumultuous session that saw it stage a more than 1,000-point comeback and still close in the red.

The S&P 500 index, battered in five of the last six trading sessions, also turned negative and ended the day with a 6.52-point decline, or 0.2 percent, to 4,349.93. The tech-heavy Nasdaq composite index, which has taken steep losses as investors rotated away from pricey stocks that have been pandemic favorites, eked out a 2.82-point advance, or 0.02 percent, to settle at 13,542.12.

In its post-meeting statement, the central bank cautioned that “the path of the economy continues to depend on the course of the virus.” The pandemic has created a vexing set of supply and demand constraints that have pushed inflation to a 40-year high, and the Fed noted that it will “soon be appropriate” to start raising rates, but stopped short to taking immediate action.

“I think it’s safe to say a March rate hike is now decidedly on the books,” Mike Loewengart, managing director of investment strategy at E-Trade, said Wednesday in comments emailed to The Washington Post. “Some think the Fed should be moving even faster than March, but the market seems to be taking today’s news in stride which means it likely priced in today’s announcement accordingly.”

With Wednesday’s statement, the Fed set the tone for the coming year, one that is likely to be among the most hawkish in recent memory, according to Danielle DiMartino Booth, chief executive and chief strategist of Quill Intelligence. Recent market swings are unlikely to divert the central bank from the rate hike and balance sheet reduction strategies that it has been telegraphing for months, Booth said Wednesday in comments emailed to The Post.

“The Fed is faced with choosing a lesser of two evils” — implement the policy measures needed to rein in surging inflation, or risk limiting business activity and take money out of an already slowing economy — Booth said. “Inflation is the Federal Reserve’s biggest worry right now.”

European indexes registered healthy gains across the board, led by Germany’s DAX, which climbed 2.2 percent. Asian markets also closed broadly positive, with the exception of Japan’s Nikkei 225, which declined around 0.4 percent.

Oil prices continued their upward march, boosted by steady production and the ongoing threats and possible ramifications of a Russian invasion of Ukraine. Brent crude, the international oil benchmark, climbed more than 2.2 percent to around $89 per barrel. West Texas Intermediate, the U.S. oil benchmark, rose more than 2.5 percent to roughly $87.80 per barrel.

Investors are pricing in the risks the conflict presents to an already embattled sector, which also has been shaken by a recent missile strikes in the Middle East and the ongoing effects of the pandemic.

“It’s still unlikely that oil and gas will be used as a weapon any time soon, but if it was, it could lead to a serious surge in prices given how tight the markets are,” Craig Erlam, senior market analyst with OANDA, said Wednesday in comments emailed to The Post.

On Tuesday, the Biden administration confirmed it was trying to secure energy for European allies in case Russia cuts off oil and gas exports in response to sanctions imposed for an invasion of Ukraine, according to reporting from CNBC.

“If Russia decides to weaponize its supply of natural gas or crude oil, it wouldn’t be without consequences to the Russian economy,” a senior administration official told the news outlet.

Meanwhile, the grind of earnings season continues. Boeing shares fell 4.8 percent after the aviation giant reported it generated positive cash flow last quarter for the first time since 2019. But it also posted an annual loss due largely to its growing 787 Dreamliner costs. Investors have been otherwise tough to impress, with giants like Verizon and 3M seeing shares fall 3.6 percent and 2.6 percent, respectively, despite earnings beats.

Ivan Feinseth, chief investment officer of Tigress Financial Partners, said the cadence of Q4 earnings is “failing to provide market support, at least in the near term, even as companies like Microsoft report record earnings.” The tech giant’s shares initially dropped after it announced that fourth quarter revenue rose 20 percent year over year. But they turned positive until after the company released a better-than-expected sales forecast. Microsoft’s net income rose 21 percent to more than $18.7 billion during the three-month period.

The market’s receptiveness to earnings could shift in the coming weeks as more companies report, Feinseth noted in commentary Wednesday. But after a year of hefty corporate earnings, buffeted by easy comparisons to 2020, it will be challenging for big names to maintain the same level of growth in a less supportive environment.