Tech sector drags ASX as Fed spoils hopes for March rate cuts

By Sumeyya Ilanbey

The Australian sharemarket was sharply lower at midday, pulling back from the all-time high it hit on Wednesday, after the US Federal Reserve said it was still too early to cut rates.

The S&P/ASX 200 fell 87.7 points, or 1.14 per cent, to 7593 at 12.50pm AEDT, with all 11 sectors trading in the red. Information technology (down 1.76 per cent) was the worst hit, while consumer staples (down 0.24) per cent recorded the smallest declines.

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

The biggest stocks on the local benchmark all declined. Mining heavyweight BHP fell 0.78 per cent, biotech giant CSL was down 1.08 per cent and the nation’s biggest bank CBA lost 1.85 per cent, ending the short-lived investor euphoria after the previous session finished at a record high of 7680.70 points, boosted by hopes for interest rate cuts.

The Fed overnight left its main interest rate steady at its highest level since 2001 and made clear that 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” its goal of 2 per cent.

“We’re not declaring victory at all,” Fed chair Jerome Powell said in a press conference, adding it was unlikely the US central bank would get to that level of comfort by its next rate meeting in March.

The comments sent the S&P 500 1.6 per cent lower for its worst loss in six weeks as traders revamped their bets for when the US central bank would start easing borrowing costs. The Dow Jones lost 0.8 per cent, while the Nasdaq composite shed 2.2 per cent, weighed down by losses in tech giants Microsoft, Google’s owner Alphabet and Advanced Micro Devices.

Australian tech stocks (down 1.28 per cent) followed the US lead, with WiseTech down 2.35 per cent and Xero falling 1.04 per cent.

Lithium miner IGO was the worst-performing large-cap stock on the local bourse, its shares falling 3.75 per cent, followed by Computershare (down 2.72 per cent) and ALS (down 2.68 per cent).


On the flipside, Endeavour Group (up 0.89 per cent) recorded the strongest gains among mega-cap stocks, followed by Northern Star Resources (up 0.76 per cent) and Newmont Corporation (up 0.59 per cent).

Shares in IGA store operators Metcash were placed in a trading halt as the company said it has entered advanced discussions in relation to the possible acquisition of Superior Food Group.

Google’s parent company Alphabet fell 7.4 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.

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 chunk of the S&P 500’s rally to a record were also struggling in the face of high expectations.

Microsoft lost 2.7 per cent even though it delivered stronger profit and revenue than expected. One analyst, Dan Ives of Wedbush Securities, even called its quarterly report “a masterpiece that should be hung in the Louvre.”

Tesla, another member of the group of stocks nicknamed the “Magnificent Seven,” fell 2.2 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 ($83.8 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.

While hosing down expectations for imminent rate cuts, Fed chief Powell said officials at the central bank have some confidence that day will arrive, but just need to see continued data confirming that inflation is heading sustainably lower. “We have confidence,” he said. “It has been increasing, but we want to get greater confidence.”

Powell acknowledged the difficult position the Fed is in, with dangers arising from both acting too quickly and too late, even though “overall it’s a good picture” for the economy at the moment. Cutting rates too soon could reignite inflationary pressures, while acting too late would mean unnecessary pain for the economy and job market.

Treasury yields in the bond market erased some of their losses from earlier in the day after the Fed made that statement, which forced traders to push out some bets that the Fed could begin cutting rates as soon as March.

Fed chair Jerome Powell disappointed Wall Street.
Fed chair Jerome Powell disappointed Wall Street.Credit: Bloomberg

“Given how strong the economy has been, the Fed probably figures it can err on the side of cutting later and slower than what the market is pricing,” said Brian Jacobsen, chief economist at Annex Wealth Management. “Come March the Fed might want to tee up a cut.”

The Fed made clear that it will watch incoming data reports to ensure inflation is sustainably moving down toward its goal.

The yield on the 10-year Treasury fell to 4 per cent from 4.04 per cent late on 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.


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