By Devik Jain and Ankika Biswas
(Reuters) – Technology and financial stocks and major Wall Street indexes fell for a third straight session on Thursday, as investors feared that the Federal Reserve’s aggressive approach to curbing inflation could lead to a recession.
The Federal Reserve raised interest rates by an expected 75 basis points on Wednesday and signaled a longer trajectory for policy rates than markets had otherwise tapped into, raising fears of more volatility in stock and bond trading in a year that has already seen bear markets in both asset classes.
“From now on, the market will be very sensitive to any kind of upcoming Fed comments and data. I expect more volatility as the market absorbs it, but at the same time we are cautiously optimistic,” said Brian Klimk, Director. For investment research at Cetera Financial Group.
“Valuations are much better than they were at the beginning of the year, earnings estimates have been lowered which makes it easier to beat. So, a lot of bad news has been taken into account now… We are creating a market where there are potential upside surprises now.”
As of Friday, estimated earnings growth for the third quarter is 5%, according to Refinitiv data. Excluding the energy sector, the growth rate was -1.7%.
The forward price-to-earnings ratio for the S&P 500, a common metric for valuing stocks, is 16.8 times earnings — well below the nearly 22 times forward price-to-earnings gains ordered by stocks at the start of the year.
Graphic: S&P 500 Forward PE https://fingfx.thomsonreuters.com/gfx/mkt/akvezblapr/Pasted%20image%201663860200947.png
Nine of the S&P’s 11 major sectors declined, led by a 2% decline in consumer appreciation and a 1.5% decline in financial stocks.
Shares of tech giants and growth companies like Apple Inc (NASDAQ :), Amazon.com Inc (NASDAQ :), Tesla (NASDAQ :), and Nvidia (NASDAQ 🙂 Corp. fell between 1% and 4% as record US Treasury yields achieved Its highest level in 11 years. [US/]
Increasing returns particularly affect the valuations of companies in the technology sector, which have high projected future earnings and make up a large portion of market capitalization-weighted indices such as the S&P 500.
The S&P 500 tech index is down 28% so far this year, compared to a 21.2% drop in the benchmark.
“The higher rates imposed yesterday and the tighter tone introduced by the Fed will affect equities in general and likely more on rate-sensitive sectors,” said Sam Stovall, senior investment analyst at CFRA Research.
“I definitely see the market testing June lows and there is an increased possibility that new lows will be set as evidenced by the rise in the two-year yield, the widening of the two-year and 10-year yield reversal.”
The S&P 500 is now far from its mid-June low of 3.5%, its weakest point of the year.
At 11:55 AM ET, it was down 75.94 points, or 0.25%, at 30,107.84, and the S&P 500 was down 25.33 points, or 0.67%, at 3,764.60, and it was down 134.38 points, or 1.20%, at 11,085.81.
The recent dismal outlook for companies such as FedEx Corp (NYSE) and Ford Motor (NYSE:) Co has raised concerns about the health of US companies.
Darden Restaurants Inc (NYSE: NYSE: ) fell 4% after Olive Garden’s parent company reported downbeat sales in the first quarter.
Eli Lilly (NYSE:) and Co. gained 3.9% after the U.S. Food and Drug Administration approved the company’s drug Retevmo to treat advanced tumors and non-small cell lung cancers.
Declining issues outnumber applicants by 5.19 to 1 on the New York Stock Exchange and by 4.18 to 1 on the Nasdaq.
The S&P recorded no new 52-week high and 118 new low, while the Nasdaq recorded 11 new high and 592 new low.