US stocks slid and Treasury yields ticked up on Wednesday after meeting minutes released by the Federal Reserve indicated that it might not only raise interest rates sooner than expected but could also reduce its overall asset holdings to tame high inflation.
The Dow Jones Industrial Average fell 89.66 points, or 0.24%, to 36,709.99, the S&P 500 lost 41.39 points, or 0.86%, to 4,752.15 and the Nasdaq Composite dropped 321.41 points, or 2.06%, to 15,301.31.
Shares of technology titans Apple Inc, Google-owner Alphabet Inc, Amazon.com, Meta Platforms and Microsoft Corp all declined between 1% and 3%.
The Fed minutes from December, released on Wednesday, offered more details on the Fed’s shift last month towards a more hawkish monetary policy.
Policymakers agreed to hasten the end of their pandemic-era program of bond purchases, and issued forecasts anticipating three quarter-percentage-point rate increases during 2022.
“Today’s FOMC minutes make clear that discussions about more than three rate hikes and outright quantitative tightening this year are on the table,” Dave Donabedian, chief investment officer for CIBC Private Wealth, US, said in an email.
The yield on benchmark 10-year notes increased to 1.6981% from 1.666% on Tuesday.
Yields on 30-year and 2-year US government bonds also ticked up to yield 2.0874% and 0.8156%, respectively.
One positive economic indicator on Wednesday was the ADP National Employment report, which showed private payrolls increased by 807,000 jobs last month, more than double what economists polled by Reuters had forecast.
Citing an optimistic corporate earnings forecast, market analysts at Citi raised their 2022 S&P 500 index price target to 5,100, a 7% gain from year-end 2021.
“We remain moderately constructive on the broader market outlook, while acknowledging valuation headwinds as the Fed moves down a more hawkish path,” the Citi analysts wrote.
Citi’s target was toward the higher end of other banks, with Morgan Stanley at 4,400 and Goldman Sachs also at 5,100.
“It’s still very much start-of-the-year mode,” said Peter Chatwell, head of multi-asset strategy at Mizuho. “Risk appetite is, as is seasonally the case, strong at this point, and the consensus view is that there is good upside still in equity markets.”
Oil prices rose, extending gains even after OPEC+ producers stuck to an agreed output target rise for February and US fuel inventories surged due to sliding demand as COVID-19 cases spiked due to the Omicron variant.
US crude rose 1.08% to $77.82 per barrel and Brent was at $80.77, up 0.96% on the day.
The US dollar currency index dipped around 0.2% on Wednesday, having edged down below recent two-week highs.
In cryptocurrencies, bitcoin was up about 0.22% at $45,921 – still significantly below its most recent all-time high of $69,000 reached in November.
Goldman Sachs said in a research note on Tuesday that Bitcoin would likely take market share away from gold as a”store of value” as digital assets become more widely adopted and that its price could hit $100,000 in five years.
Spot gold added 0.2% to $1,818.21 an ounce.
US gold futures gained 0.06% to $1,824.60 an ounce.
