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Fed hike in March? Nasdaq stumbles 2.2%, Dow off 223

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Fed hike in March? Nasdaq stumbles 2.2%, Dow off 223

January 28
13:07 2016

Stocks dove sharply into negative territory after the Federal Reserve signaled Wednesday that it has not ruled out another interest rate hike at its March meeting despite noting that it is “closely monitoring” recent turbulence in financial markets and the global economy. The Dow Jones industrial average fell 223 points, or 1.4%. The broader Standard & Poor’s 500 lost 1.1% and the Nasdaq composite suffered a 2.2% drop. All three major stock gauges surpassed earlier lows reached in the morning.130130035540-federal-reserve-building-monster

Wall Street had been hoping the Fed would use its post-meeting January policy statement to send a different message: that it would, in effect, dial back the prospect for a rate hike at its March meeting and lower the likelihood of four quarter-point hikes in total for the year. But the Fed didn’t go that far or wasn’t “dovish” enough, disappointing investors who responded by dumping stocks as the question marks related to Fed policy remained open.

Wall Street might have had unrealistic expectations that the Fed would rule out a March rate hike or veer early from its stated hope to do four quarter-point rate hikes in 2016, says Robert Pavlik, chief market strategist at Boston Private Wealth. “I thought the policy statement was pretty neutral,” Pavlik said “It leaves the door open to a rate hike in March, and that is what the market is concerned about. The market wanted some reassurance that it was not going to happen and it didn’t get that from the Fed statement.”

Like many Wall Street pros,  Ryan Larson, head of equity trading at RBC Global Asset Management, thought it made more sense for the Fed to signal a pause, given all the market turbulence to kick off the new year. “It would be prudent for the Fed to pause for a few meetings” to assess the impact of global growth fears and the volatile energy patch on markets going forward, he said. The Dow and S&P 500 were slightly positive leading into the announcement and turned negative a few minutes later. The Nasdaq, down for most of the day, sank lower as well. As the afternoon wore on, all three surpassed their earlier session lows of the morning.

The Fed, which raised rates off zero back in December, has said it is looking to add an additional four quarter-point hikes this year. But that pace of hikes now seems aggressive to Wall Street given the market volatility and slowing growth at the start of 2016. The fact that the Fed did not more clearly signal a less aggressive rate-hike timetable was enough to stamp out any hopes of a relief rally. Before the release of the Fed’s statement, Thomas Tzitzouris, a fixed income strategist at Strategas Research Partners, had noted that any words from the Fed that nudged March rate hike odds “closer to zero” would bring with it a “broader relief rally.” Gains in the the Dow were also being held back by two of its well-known components. Apple (APPL) shares were down about 5% after the company topped quarterly profit estimates but said sales of iPhones came in at the slowest pace since its introduction.