ASX set to open lower; Fed chief hoses down March cut hopes

By Stephen Culp
Updated

Wall Street added to the day’s losses after the Federal Reserve held interest rates steady while reiterating that despite progress, inflation risks remain and that no rate cuts were imminent.

The three major US stock indexes were already weighed down by weakness in tech and tech-adjacent megacap stocks the day after disappointing Alphabet results and retreated on the Fed’s latest statement.

Tech stocks have slumped on Wednesday.
Tech stocks have slumped on Wednesday. Credit: AP

The S&P 500 was 0.7 per cent lower in late trading. The drops for Big Tech sent the Nasdaq composite down a market-leading 1.8 per cent. The Dow Jones, which has less of an emphasis on tech, slid by 0.6 per cent. The ASX, which recorded a closing high on Wednesday, is set to open lower, with futures at 5.09am AEDT pointing to a fall of 71 points, or 0.9 per cent.

As expected, the Federal Open Markets Committee (FOMC) left its key policy rate unchanged at 5.25 per cent-5.50 per cent against a backdrop of gradually cooling inflation and a resilient economy.

In its accompanying statement, the FOMC said it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 per cent,” a blow to market participants who were hoping for a dovish pivot as early as March.

“We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year,” Fed Chair Jerome Powell said.

“We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate.”

Alphabet was one of the heaviest weights on the market, and it fell 6.6 per cent despite reporting stronger profit and revenue for the latest quarter than analysts expected. Underneath the surface, analysts pointed to some concerning trends in how much Google’s parent company is earning from advertising.

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The bigger challenge, though, may have been the high expectations the company is contending with after its stock soared last year by much more than the rest of the market. Other Big Tech stocks that likewise accounted for a disproportionate amount of the S&P 500’s rally to a record were also struggling Wednesday in the face of high expectations.

Microsoft was down 1.5 per cent even though it delivered stronger profit and revenue than expected. One analyst, Dan Ives of Wedbush Securities, even called the quarterly report “a masterpiece that should be hung in the Louvre.”

Tesla, another member of the group of stocks nicknamed the “Magnificent Seven,” sank 1 per cent. A judge in Delaware ruled a day earlier that its CEO, Elon Musk, is not entitled to the landmark compensation package awarded him by Tesla that’s potentially worth more than $US55 billion ($83.4 billion).

The Magnificent Seven were responsible for the majority of the S&P 500’s return last year, and three more members are scheduled to report their latest quarter results on Thursday: Amazon, Apple and Meta Platforms. Expectations are high for them, too.

Advanced Micro Devices is not a member of the Magnificent Seven, but it benefits from many of the same trends. It fell 3.2 per cent even though it matched analysts’ expectations for profit in the latest quarter and edged past them for revenue. Its forecast for revenue in the upcoming quarter fell short of analysts’ estimates.

Elsewhere on Wall Street, stocks were getting some lift from easing yields in the bond market.

Lower yields can mean less pressure on the economy and financial system, while also encouraging investors to pay higher prices for stocks. They’ve been generally dropping since autumn on expectations that a cooldown in inflation will push the Federal Reserve to cut interest rates several times this year.

The yield on the 10-year Treasury fell to 3.96 per cent from 4.04 per cent late Tuesday.

In stock markets abroad, indexes slumped sharply again in China amid continued worries about a weak economic recovery and troubles for the country’s heavily indebted property developers.

Stocks were mixed elsewhere in Asia and in Europe.

Reuters, AP

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