US Stock Market Weekly Wrap: Dow Jones Crashes 1,070 Pts In 5 Sessions, But Nasdaq, S&P 500 Jump; Key Factors

The US stock market closed this week's trading sessions on a mixed note, with the Dow Jones index taking the worst hit. DJIA underperformed its counterparts with more than a 1,000-point decline, while the Nasdaq Composite and S&P 500 indexes gained during the week. A host of important data played a role in determining the market trend. The biggest mover was definitely the US Federal Reserve's policy outcomes, where it hiked the key rates by 25 basis points to 3.75% to 4%, citing inflationary pressures as the key reason. Crude oil prices and Treasury yields declined after hitting multi-year high levels.

Dow Jones + Nasdaq + S&P 500

On September 18th, the Dow Jones dipped by 95.40 points or 0.2% to end at 51,682.64. On the contrary, the Nasdaq Composite index zoomed by over 104 points or 0.4% to close at 26,522.54 and S&P 500 index surged by 13 points or 0.2% to end at 7,650.50.

Explaining the latest performance in Wall Street, Trading Economics data said, the 10-year yield rebounded as persistent uncertainty over Middle Eastern oil supplies drove fuel and natural gas prices higher. The threat of energy-driven inflation has affected underlying consumer prices, prompting the Fed to hike rates this week. Most FOMC members saw the need for another hike. Credit-sensitive sectors fell, with banks and asset managers posting losses. Bank of America lost 0.8%, while Goldman Sachs fell 1%. AI hyperscalers were mostly lower amid their debt issuance spree to fund capital expenditures. Meta shed 2.4%, while Oracle lost 2%. Chipmakers were mostly higher, with Broadcom up 3% and Micron rising 3.9%, offsetting losses in the Nasdaq.

US Stock Market Weekly Wrap

However, for the week, Dow Jones crashed by 1,068.24 points or 2.03%. In contrast to Dow, the Nasdaq posted weekly gains of 504.04 points or 1.94%, emerging as the top performer of the week. Meanwhile, S&P 500 index recorded 39.06 points or 0.51% weekly upside.

The FOMC members hiked fed rates by 25 bps points to 3.75% to 4% with favour of 12-0 in votes. This is the first rate hike in 3 years. Fed has also signaled that one more rate hike could be on the table before 2026-end as they grapple with elevated inflation which has worsened by a recent surge in crude oil prices.

The Kevin Warsh-led FOMC has hiked Fed rates for the first time in 3 years. The reason is the inflation. Warsh said, "The plain fact is that inflation is too high and has been for too long." Warsh reiterated that FOMC's predominant focus is on the price stability side of their mandate. However, White House criticized the decision.

Federal Reserve tightening has historically brought near-term volatility, but equities tended to often recover after early drawdowns, as per Charles Schwab's note.

The note added that slow hiking cycles have historically produced milder market declines and stronger economic outcomes than fast cycles. Meanwhile, a resilient labor market and firm coincident indicators support a gradual Fed approach, with volatility potentially creating opportunities for disciplined investors.

Furthermore, Ponmudi R, CEO of Enrich Money said, the Fed ultimately delivered a 25-basis-point rate hike, raising the federal funds target range to 3.75%-4.00% and marking its first increase since 2023. While the move had been largely anticipated, the accompanying projections proved more consequential for markets. Sixteen of the 18 officials submitting projections indicated a preference for further tightening this year, keeping the prospect of another increase firmly in focus. Persistent inflation remained a concern, with August U.S. CPI rising 0.4% month-on-month and core CPI increasing 0.3%. Markets subsequently priced the probability of another rate hike in October at around 55%. Treasury yields moved above 5%, creating a more challenging backdrop for non-yielding assets and prompting gold and silver to reverse their gains shortly after the Fed announcement.

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