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Nasdaq Tumbles 500 Points as Fed Minutes Suggest Rate Hike Sooner Than Expected

TheStreet logo TheStreet 1/5/2022 Rob Lenihan
a person standing in front of a computer: Nasdaq Tumbles 500 Points as Fed Minutes Suggest Rate Hike Sooner Than Expected © TheStreet Nasdaq Tumbles 500 Points as Fed Minutes Suggest Rate Hike Sooner Than Expected

The new year took a decidedly bad turn on Wednesday, as stocks finished sharply lower over concerns about higher interest rates, one day after the Dow Jones Industrial Average notched another record close.

The Dow Jones finished down 392 points, or 1.07%, to 36,407, while the Nasdaq fell 522 points, losing 3.34% and the S&P 500 fell 1.94%.

The results contrasted sharply with Tuesday's close, when the Dow climbed 200 points to a high.

The Federal Reserve released the minutes of their December meeting, which indicated that the U.S. central bank may need to raise interest rates sooner than expected.

"Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated," the minutes said. "Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve's balance sheet relatively soon after beginning to raise the federal funds rate."

Cliff Hodge, chief investment officer for Cornerstone Wealth, said that "at first blush the December FOMC minutes read hawkish, and the market reaction supports this."


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"Dollar and yields both ripping post-release and stocks hitting the lows of the day," Hodge said. "The fact that FOMC participants are discussing faster and more aggressive rate hikes, alongside a faster pace of balance sheet normalization (QT) than the last hiking, indicate that the Fed put for the stock market has been repriced lower."

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said that given the twin concerns of rising inflation and potential for negative growth surprises, "you can see why they have urgency in completing their tapering as soon as possible, while still leaving optionality for the timing of the first rate hike."

The release of the minutes put additional pressure on the already-troubled tech sector.

Adobe shares ended down 7.14% after UBS downgraded the company to neutral from buy. Salesforce.com , which was also downgraded by UBS, lost 8.27%.

Salesforce.com was included on Barron's list of 22 undervalued stocks.

Private job growth totaled 807,000 in December, according to a report from the payroll processing firm ADP.

The results surpassed the Dow Jones estimate for 375,000 as well as the November gain of 505,000.

Brent crude, the international oil benchmark was up slightly to $80.07 a barrel on Wednesday.

Beyond Meat shares fell 5.1% even after the plant-based meat-substitute maker said it is teaming up with Yum Brands' KFC to roll out Beyond Fried Chicken.

This article was originally published by TheStreet.
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