US tech stocks were hard hit after the Federal Reserve announced a series of measures to bring the nation out of the specter of inflation. These measures included the tapering of bond purchases early next year as well as three interest rate rises throughout 2022.
Abobe and Nvidia were among the tech companies that saw their stock price slide after the meeting at the Fed, but Apple, Tesla, Amazon and Microsoft all saw falls of between 2% and 7%. With investors flocking towards more economically stable areas, it saw the tech-heavy Nasdaq index dropping by 2.5% while the S&P 500 lost 0.9%.
The Dow Jones Industrial Average was relatively unchanged, and gold was actually boosted by 0.5% as a result of the fall in the dollar. There were also gains for metals such as silver, platinum and palladium.
The retreat from growth stocks was expected with such assets being seen as being less likely to perform well when there is a rise in interest rates. Conversely the S&P 500 value index of assets that enjoy value rises during economic recovery was up 0.7% following the Fed announcement. So while the technology index on the S&P 500 slumped by 2.9%, financials on the index were up by 1.2%.
With a focus on more stable stocks, it reflects a new sense of uncertainty about how the US will emerge out of the pandemic. With the outbreak of the Omicron variant of Covid-19, alongside skyrocketing consumer and producer price inflation, it signals that there could be trouble ahead. However, it’s worth noting that the S&P 500 has had an excellent year and is up around 25% in 2021 despite the challenges of the pandemic and economic turbulence.
The focal point of the Federal Reserve meeting is that it will reduce its stimulus program ahead of schedule as it aims to counter the spiraling rate of inflation. This means the monthly support packages are expected to be curtailed by $30 billion each month and will be completely withdrawn by the end of March 2022.
Following this, there are expected to be three interest rate rises of 0.25% throughout the year. If things progress as the Fed hopes, then unemployment rates would be expected to drop to 3.5% and interest rates would reach around 0.9% by the end of 2022.
Such moves are made as the US economy is expected to continue expanding following a successful vaccination program and positive employment numbers. While demand is up, there remain big concerns about how the Omicron variant could hamper the economic progress and even trigger a kind of stagflation not seen since the 1970s.
The US is already experiencing staggering price rises for everything from rent and used cars to food and gas, and the monetary policies outlined by the Fed should go some way to countering the worst inflation rates since 1982.
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