According to an Associated Press report earlier this month, the bear market ended on Oct. 12, 2022. That only adds poignancy to the question: Why are stocks down today? Although technically a blip in the grand scheme of things, today the equities sector is facing another day of red ink.
Unsurprisingly, the usual suspect is the Federal Reserve. Considered the “most powerful economic institution in the United States,” the Fed’s core responsibilities include setting interest rates, managing the money supply and regulating financial markets, per the Council on Foreign Relations. As a result, the reason why stocks are down naturally often has something to do with the central bank.
For the midweek session, the benchmark S&P 500 has slipped just below parity against yesterday’s close. Fundamentally, Wall Street is likely digesting Fed Chair Jerome Powell’s latest remarks about inflation. Although the Fed aggressively began raising interest rates last year to combat skyrocketing consumer prices, this issue continues to cloud the country’s rather fragile post-pandemic economic recovery.
What’s putting investors off in particular? Well, Powell stated that more rate hikes may be on the horizon. Adding to the dour mood, these comments represent somewhat of a pivot from last week’s Fed meeting when it held off from raising rates. Per CNBC, up to that point, the central bank had raised rates 10 consecutive times.
Why Are Stocks Down Today? Powell Gives Unwanted Straight Talk.
Essentially, a rapid decompression is sparking anxiety and ambiguity on the Street. “Nearly all FOMC [Federal Open Market Committee] participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell stated for the House Financial Services Committee.
Why are stocks down today? It really comes down to the Fed taking away the monetary punch bowl and deciphering the consequences of that action.
Powell and company face the gargantuan task of taming inflation while not bringing the economy to its knees. For example, while multiple nuances exist in the May jobs report, the headline print moves in the wrong direction for the Fed; the economy added 339,000 jobs last month, well above the projected 190,000.
On paper, this dynamic implies that more dollars (from more employed workers) chase after fewer goods. Obviously, within this framework, such an equation undergirds inflation. However, the Fed would like to chip away at this armor. That ties to why stocks are down today. Higher borrowing costs discourage business growth, eventually leading to fewer dollars chasing after more goods.
Unfortunately, though, it’s not just a matter of corrective steering. Excessive job losses could be even more detrimental to the economy than escalating inflation. Thus, the Fed must marshal all of its prowess and ingenuity to navigate these waters.
Why It Matters
Not helping things is rising indebtedness among Americans. According to the Federal Reserve Bank of New York, total household debt jumped to a record $17.05 trillion in the first quarter of 2023. Put another way, if the labor market slows down, consumers will have enormous difficulty paying down this enormous obligation.
Unfortunately, the Fed has to walk a tightrope. That only underlines why stocks are down right now.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.