U.S. Stocks Close Lower as Fed Signals Rate Hikes, Nasdaq Snaps Winning Streak

Carmax, the popular used car marketplace, experienced a significant jump in its shares after reporting better-than-expected quarterly profits. The company’s shares surged by 10.1% following the announcement, indicating strong performance and investor confidence in the company’s financials.

On the other hand, Starbucks faced a setback as its unions announced that around 3,500 workers in the United States would go on strike next week. The strike is in protest against the chain’s ban on Pride month decorations at its cafes. As a result, Starbucks’ shares fell by 2.5%, reflecting the potential impact of the strike on the company’s operations and reputation.

Overall, the U.S. stock market closed lower on Friday, with all three major indexes experiencing a broad sell-off. The Dow Jones Industrial Average fell by 0.65%, the S&P 500 lost 0.77%, and the Nasdaq Composite dropped by 1.01%. This decline comes after a week dominated by Federal Reserve Chairman Jerome Powell’s testimony, in which he signaled more interest rate hikes in the future but emphasized the central bank’s cautious approach.

The tech-laden Nasdaq composite index was particularly affected by the sell-off, with interest-sensitive megacap stocks, such as Microsoft, Tesla, and Nvidia, weighing heavily on the index. This led to the Nasdaq snapping its eight-week winning streak, its longest since March 2019. Similarly, the S&P 500 broke its five-week rally, its longest since November 2021.

The decline in the stock market can be attributed to the lack of market-moving catalysts aside from Powell’s testimony. However, analysts suggest that the sell-off is a natural correction after a prolonged period of market gains. Ross Mayfield, an investment strategy analyst at Baird, stated that the market had been overbought and that the pause in the rally was expected and orderly.

Looking ahead, the Federal Reserve’s decision on interest rates remains a key factor for investors. San Francisco Fed Bank President Mary Daly stated that two more rate hikes this year are a “very reasonable” projection, echoing Powell’s call for caution in policy decisions. However, Atlanta Fed President Tom Barkin expressed skepticism about inflation reaching the 2% target and refrained from predicting the outcome of the central bank’s July policy meeting.

Financial markets currently anticipate a 74.4% likelihood of the Fed resuming interest rate hikes by another 25 basis points at the July meeting. However, there is skepticism regarding a second rate hike, with analysts suggesting that economic data may not support it by the time of the September Fed meeting.

In summary, the U.S. stock market closed lower on Friday, with Carmax experiencing a significant jump in its shares after reporting better-than-expected quarterly profits. Conversely, Starbucks faced a decline in its shares as its unions announced an upcoming strike in protest against the ban on Pride month decorations. The market sell-off was driven by Powell’s testimony and a lack of market-moving catalysts, with the Nasdaq and S&P 500 breaking their respective winning streaks. The Federal Reserve’s future interest rate decisions remain a key focus for investors.

How did the stock market’s three-day winning streak come to an end with its biggest one-day decline in over a month?

Three-day winning streak and experiencing its biggest one-day decline in over a month.

Investors were also keeping a close eye on inflation data, with the consumer price index (CPI) for June showing a 0.9% increase, slightly higher than expected. This raised concerns about the possibility of rising inflation and its potential impact on the economy.

In addition, renewed fears about the Delta variant of COVID-19 and its potential implications for the global economic recovery also contributed to the market’s decline. As cases continue to rise in many parts of the world, investors are becoming more cautious about the outlook for economic growth.

Despite the overall decline in the stock market, there were some bright spots. Shares of GameStop Corp. rose by 2.6% after the video game retailer announced that it would be selling up to 5 million shares of its stock to raise capital for business growth and transformation.

In the energy sector, oil prices surged to their highest level in six years after OPEC+ failed to reach an agreement on production levels. This led to a halt in talks, raising concerns about a potential supply shortage and pushing oil prices higher.

Looking ahead, investors will be closely watching earnings reports from major companies, as well as economic data, for further insights into the state of the economy and the potential direction of the stock market.