S&P 500 snaps 2-day winning streak after Fed raises rates and signals more hikes next year

Pro Picks: Watch all of Wednesday's big stock calls on CNBC
Pro Picks: Watch all of Wednesday's big stock calls on CNBC

Stocks slid Wednesday as investors absorbed the Federal Reserve's latest interest rate hike decision in its efforts to crush inflation.

The Dow Jones Industrial Average fell 142.29 points, or 0.42%, to 33,966.35. The S&P 500 declined 0.61% to 3,995.32. The Nasdaq Composite dropped 0.76% to 11,170.89.

Major averages hit their lows of the session after Federal Reserve Chairman Jerome Powell signaled more data was needed before the central bank would meaningfully change its view of inflation. The Dow fell as much as 404.47 points, after climbing 287.01 points earlier in the day.

"The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to give confidence that inflation is on a sustained downward path," said Powell.

The Fed delivered a widely anticipated 50 basis point rate hike at the conclusion of its December policy meeting. It's a smaller bump from the prior four consecutive rate hikes of 75 basis points. A basis point is equal to one-hundredth of one percent.

Fed officials also forecast raising rates through next year, not lowering rates until 2024. The central bank ultimately sees itself taking rates to 5.1% before it stops hiking, a so-called terminal rate that is higher than the 4.6% level it forecast in September.

Notably, the Federal Open Markets Committee left in a key part of the policy statement that it "anticipates that ongoing increases in the target range will be appropriate."

"The big issue that makes it hawkish is that the Fed's forecasts put the terminal rate at 5.1% for 2023 from 4.6% at the September meeting," said Jim Caron of Morgan Stanley Investment Management. "There's no tip of the hat to the notion that [the pace of] inflation is starting to decline. They just completely ignored it."

Treasury yields fluctuated during Powell's press conference, as the central bank indicated further rate hikes ahead.

— CNBC's Jesse Pound contributed to this report.

Stocks close lower Wednesday

Stocks closed lower Wednesday as investors absorbed the Federal Reserve's latest interest rate hike decision in its efforts to crush inflation.

The Dow Jones Industrial Average fell 142.29 points, or 0.42%, to 33,966.35. The S&P 500 declined 0.61% to 3,995.32. The Nasdaq Composite dropped 0.76% to 11,170.89.

Markets gyrated after Federal Reserve Chairman Jerome Powell signaled more data was needed before the central bank would meaningfully change its view of inflation. The Dow fell as much as 404.47 points, after climbing 287.01 points earlier in the day.

— Sarah Min

Powell is investors' 'Scrooge,' wealth manager says

Excitement from investors after Tuesday's cooler-than-expected inflation data was hampered by the central bank's decision on interest rate hikes and Chair Jerome Powell's sentiment on Wednesday, according to Gina Bolvin, president of Bolvin Wealth Management Group.

Stocks closed higher Tuesday after the consumer price index showed prices rose less than expected by economists. But Bolvin said investors did not see the same hope with the Fed decision.

"Investors, in the holiday spirit for yesterday's CPI report, had their hopes dashed for a Santa Clause rally when Jerome Powell played Scrooge at the Fed meeting this afternoon," she said, referring to the character from "A Christmas Carol." "While the market had priced in a 50 basis point hike, and this is the highest rate in 15 years, Powell appeared as Scrooge and put coal in investors stockings with his hawkish tone."

Bolvin likened Powell's remarks to his August speech in Jackson Hole, Wyoming, when he said there would be "some pain" ahead as the central bank attempted to bat down inflation.

"Realizing the Fed isn't going to pivot any time soon recession jitters immediately sent the markets tumbling," Bolvin said. "This is Jackson Hole all over again."

— Alex Harring

Hey big spender, where are you this holiday season?

Barclays said the pace of holiday gift buying has picked up, but spending season-to-date remains down year over year based on its research, which draws from surveys and credit card data.

Some of the most dramatic declines from last year have occurred in the luxury category, with spending down 12% on Cyber Monday — an acceleration from Black Friday's 8% drop.

Based on the trends it's seeing, Barclays analysts said they think shoppers are using big sales events to buy the goods they need — not just gifts — which has helped discount categories see gains from last year.

"The pullback by luxury consumers may be because they have more flexibility in adjusting their spending than discount consumers as prices rise. The rise in discount consumers may show their proclivity toward holiday deals, especially e-commerce ones," analysts wrote in a research note Wednesday.

Some brands bucked the trends and did very well on Cyber Monday, they said, citing Urban Outfitters' Free People, Bloomingdale's, Lululemon and Foot Locker as examples that saw growth of between 34% and 152% from 2021. On the flip side, West Elm, Adidas, Restoration Hardware and Under Armour saw some of the biggest declines year over year on Cyber Monday, they said.

-Christina Cheddar Berk

Dollar gives up post-Fed gains

The greenback initially moved higher for the day after the Fed's 2 p.m. ET announcement but gave up those gains toward the end of Jerome Powell's presser.

The US Dollar Currency Index was last at 103.55, down about 0.4% on the session. The index rose as high as 104.16 in the previous hour.

The Fed's rate hikes this year have contributed to a big year for the dollar, as the central bank has pushed U.S. government debt yields above those of sovereign debt from peer countries, including in Europe.

—Jesse Pound

Fed statement does not help investors looking for signs of a pivot, investing officer says

The Federal Open Market Committee's statement did not provide signals of an actual pivot coming on interest rate policy, rather than simply a slowdown, according to Jason Pride, Glenmede's chief investment officer of Private Wealth. And he said that doesn't spur optimism among investors.

"Investors hoping for hints of an imminent Fed pivot embedded within the post-release statement were likely disappointed, which contained language virtually unchanged relative to the November meeting," Pride said. "In particular, the recognition that 'ongoing increases in the target range will be appropriate' suggests that the Fed has no immediate plans to halt its rate hike campaign."

Pride said investors should expect the Fed to become "less prescriptive and increasingly reactive" to inflation trends when making decisions on rates in 2023. He said to expect rate hikes of 50 to 75 basis points for the first quarter until settling at a terminal rate of around 5%.

Then, he said the central bank is likely to let rates "plateau until they are sufficiently confident that the inflation menace has been eradicated." Pride said that process should take a large amount of — if not the entire — next year.

— Alex Harring

Powell wants 'substantially more evidence' that inflation is cooling

Federal Reserve Chairman Jerome Powell said Wednesday the recent positive signs for inflation aren't enough for the central bank to ease back on interest rate increases.

"It will take substantially more evidence to have confidence that inflation is on a sustained downward" path, Powell said during his post-meeting news conference.

The comments came as the Fed raised its benchmark rate another half percentage point and indicated at least another three-quarters of a point in hikes are coming. The decision also occurs a day after November's consumer price index reading was up just 0.1%, an indication that inflation may have peaked.

However, Powell said inflation remains a problem.

"Price pressures remain evident across a broad range of goods and services," Powell added.

—Jeff Cox

The U.S. economy has slowed significantly from last year's rapid pace: Fed Chair Jerome Powell
The U.S. economy has slowed significantly from last year's rapid pace: Fed Chair Jerome Powell

Fed's dot plot expectations contributing to negative market reaction, says LPL Financial's Krosby

Plans to take interest rates as high as 5.1% in 2023 are weighing on markets after the Federal Reserve's latest interest rate decisions, according to LPL Financial's Quincy Krosby.

"The expected 50 basis point hike in rates is not what is causing the sell-off in the market, rather it is dot plot expectations that the Fed will hold rates throughout 2023, and not begin rate cuts until 2024," she said.

The 50-basis-point rate hike brings the borrowing rate to a targeted range between 4.25% and 4.5%, and the highest level in 15 years.

— Samantha Subin

How the major indexes reacted to the Fed's decision

The stock market responded to the Fed's widely anticipated 50 basis point rate hike.

See how the major indexes moved from 30 minutes before the decision to 30 minutes after:

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— Alex Harring

Stocks fall following Fed decision

Stocks dropped following the Fed's announcement of a 50 basis point hike.

All three indexes were trading down in the minutes following the move.

The Dow was down 80 points, or 0.2%. The S&P 500 and Nasdaq Composite dropped 0.3% and 0.6%, respectively.

— Alex Harring

Fed announces 50 point rate hike

The Fed announced it will raise interest rates by 50 basis points, marking an end to the pattern of 75 point hikes seen in recent months.

Before this move, the Fed had raised rates by 75 basis points at the last four meetings. A basis point is equivalent to 0.01%.

The 50 basis point hike was widely expected ahead of the meeting.

It's the final policy decision expected from the central bank in 2022.

Alex Harring

Amazon is the 'safest place' in e-commerce, Bernstein says

Amazon could be a smart stock to wait out the downturn in e-commerce, but don't expect a short-term winner, according to Bernstein.

Analyst Mark Shmulik wrote in a note to clients on Wednesday that Amazon is gaining ground against its peers in an increasingly shaky online-shopping market.

"Amongst the uncertain [backdrop], Amazon continues to look like the safest place in eCommerce after taking share in 3Q and likely continuing to do so in 4Q. However, management has finally tempered expectations on significant OI margin improvement, at least until 1Q23, leaving limited catalysts for outperformance in the near term, absent a reacceleration of the topline at AWS," Shmulik wrote.

Shares of Amazon were up 0.4% on Wednesday. The stock is down more than 40% for the year.

— Jesse Pound, Michael Bloom

Stocks can rally next year even with negative earnings growth, says Fundstrat's Lee

Positive earnings growth isn't a requirement for stocks to stage a solid rally in 2023, says Fundstrat's Tom Lee.

"It's rare for stocks to have back-back declines," Lee told CNBC's "Halftime Report" on Wednesday, adding that history shows stocks can post double-digit gains regardless of earnings. Stocks should also perform well as long as the inflation crisis reaches an end.

Lee, who gained attention in recent years after becoming one of the few Wall Street strategists to call the Covid-19 bottom and the rebound that followed, said the 2-year yield is also signaling that the Fed has one more hike ahead.

"The two-year yield after today is going to be below fed funds rates," he said. "I think to me, that's why they would have to be quite hawkish to shock markets, and there's a possibility markets would just challenge the fed on a view like that."

Markets, Lee said, also tend to bottom before a Fed pivot.

— Samantha Subin

Momentum looks 'tired,' Strategas says

The S&P 500 appears to be running out of momentum, according to Strategas' Chris Verrone.

Verrone pointed to Tuesday's market action when the broader market index topped 4,100 at the highs of the session, before falling to a session low of 3,993. The S&P 500 closed out Tuesday at about 4,020.

"Despite trading through the November 30th high, there's significantly fewer stocks above their short-term 20-day moving average today (65%) vs. then (92%) – momentum looks tired," Verrone wrote in a Wednesday note.

Notably, bank stocks lagged the broader market, pointing to trouble ahead for the sector as the consumer weakens on rising inflation.

"[This] has become an important story over recent weeks, and we remain uneasy with the lack of participation from the group … the weakest charts are still among the Regionals and Consumer Finance names," he wrote.

— Sarah Min

Stocks making the biggest moves midday

Check out the companies making the biggest moves midday:

  • SoFi Technologies — The fintech stock jumped more than 7% after a filing showed CEO Anthony Noto bought $5 million in common stock. The purchase was done through multiple trades from Friday to Tuesday, the filing said.
  • Charter Communications — Charter Communications dropped more than 13% after CEO Thomas Rutledge said at an investor event the company will invest $5.5 billion over three years to upgrade its high-speed internet network.
  • Tesla — Shares of the electric vehicle maker shed more than 1% following analyst calls for how the stock will perform in 2023. Goldman Sachs cut its price target while reiterating the stock as a buy. Morgan Stanley said it was a top auto pick for 2023.

Read about more movers here.

— Michelle Fox

Barclays upgrades Lennar, says shares could rally 25% as housing market bottoms

Barclays upgraded homebuilding stock Lennar to an overweight rating, saying in a note to clients that the stock is one of the best-positioned names to capitalize on a housing trough in 2023.

"We view LEN as a consistent executor on all fronts, and we see more relative upside for LEN as we enter a period where builder valuations are positioned to outperform," wrote analyst Matthew Bouley. "We think LEN deserves a premium given expectations for above-peer book value growth over the next few years."

Shares gained 1% during midday trading.

CNBC Pro subscribers can read more on the call here.

— Samantha Subin

Bank of America downgrades Best Buy, cites slowing consumer spending

Bank of America downgraded shares of Best Buy to underperform, saying in a note to clients Wednesday that the stock could tumble nearly 20% as inflation hinders consumer spending.

"We believe it is in a strong position in core products and should have opportunities to expand into new categories going forward, although a medium-term pullback on discretionary retail categories presents a headwind to both sales growth and valuation," wrote analyst Elizabeth Suzuki.

Read more on the call from Bank of America here.

— Samantha Subin

Jeffries boots Netflix's price target, reiterates hold rating

Jeffries raised its price target on Netflix to $310 from $250, but remains cautious on the streaming service near-term, analyst Andrew Uerkwitz wrote in a note Thursday.

He believes the impact of its new ad-supported video on demand (AVOD) will be largely immaterial until the company cracks down on password sharing and stealing.

"The friction caused by password crackdown should result in a more gradual uptake in new members (AVOD or SVOD) than is currently being considered," Uerkwitz said. "However, the exit rate in 2023 + incremental retention of password sharers in 2024 results in an upward revision to our revenue, from $37.9B to $40.4B."

Therefore, he is keeping his hold rating on the stock and believes investors could get a better entry price based on his long-term thesis.

— Michelle Fox

Utilities, industrials outperform in the S&P 500, energy lags

Utilities and industrials were the leading sectors in the S&P 500, last trading 1.34% and 0.96% higher, respectively. Meanwhile, energy stocks lagged the broader market index, down 0.5%.

In utilities, shares of Duke Energy, PPL and Exelon boosted the sector, all up more than 1%. In industrials, shares of Generac and Delta Air Lines led gains, each more than 3% higher in morning trading.

Meanwhile, energy stocks such as Halliburton and APA dragged on the sector, each down more than 1%.

— Sarah Min

Moderna outperforms

Moderna was the top gainer in the S&P 500 during morning trading, with shares advancing more than 6%.

The pharmaceutical stock added to gains from the prior session when it surged 19.6% after Moderna on Tuesday announced promising data on its cancer treatment.

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— Sarah Min

Markets are pricing in 'perfection' after light inflation print, Wolfe Research says

Investors are expecting "perfection" after the November CPI report suggested inflation may have peaked, according to Wolfe Research.

Meanwhile, a dovish tone from Federal Reserve Chair Powell at the conclusion of the two-day policy meeting Wednesday could mean stocks will continue to run into the year-end, the firm's Chris Senyek said in a Wednesday note. According to the note, the major averages could potentially hit mid-August highs.

Still, Senyek said he expects disappointment ahead.

"In our view, the market is pricing in a continued sharp deceleration in inflation trends, the Fed pausing in March before cutting in the fall, a 'soft landing' in which real GDP turns only slightly negative (if at all), and EPS expectations falling only modestly from current levels," Senyek wrote.

"Despite yesterday's inflation print, we still expect consensus to ultimately be disappointed!"

— Sarah Min

Stocks open little changed

Stocks opened little changed Wednesday as investors awaited the Federal Reserve's latest interest rate hike decision in its effort to crush inflation.

The Dow Jones Industrial Average gained 46 points, or 0.1%. The S&P 500 and Nasdaq Composite were roughly flat.

— Sarah Min

UBS says buy this 'one-stop hydrogen shop' poised to rally

UBS says it's time for investors to get in on shares of this "one stop hydrogen shop" poised to benefit from growing interest in green hydrogen.

Analyst Manav Gupta initiated coverage of this hydrogen fuel cell maker with a buy rating, saying investors are underappreciating the stock's growth opportunity. The bank's price target suggests that shares could rally more than 80% from Tuesday's close.

Read more on the call and which stock UBS is betting on here.

— Samantha Subin

Sofi shares jump after CEO's $5 million stock purchase

Shares of SoFi Technologies climbed nearly 3% in premarket trading Wednesday after a filing showed CEO Anthony Noto bought $5 million in common stock.

The purchase was done through multiple trades from Friday to Tuesday, the filing said. The stock is down more than 70% this year as regulatory pressure mounted.

— Yun Li

S&P 500 is at risk of a near-term downdraft, one chart analyst says

There is near-term risk ahead for the S&P 500, according to Katie Stockton, founder and managing partner of Fairlead Strategies.

The chart analyst said a short-term counter-trend gauge flashed a sell signal Tuesday that suggested several weeks of retracement ahead.

"We haven't seen a sell signal of that nature since December of '21. It's not a long term signal. It just happens to be the first one that we've seen. And it suggests that we'll see at least a several week retracement here. So we think risk is heightened," Stockton said Wednesday on CNBC's "Squawk Box."

"And there might be some really positive seasonal influences that help markets avoid that downdraft until perhaps January but we do think that there's risk here," she added.

Additionally, the chart analyst said Tuesday's market action suggested the relief rally has run its course. The major averages rallied on Tuesday following a lighter-than-expected inflation report, with the S&P 500 rising as much as 2.77%, but then gave back much of those gains by the close.

"We're looking at yesterday as a knee-jerk reaction. We also think that probably similar action likely at some point today," Stockton said. "Very short term of course, but we suspect that this relief rally has essentially matured."

— Sarah Min

Stocks making the biggest moves premarket

Check out the companies making headlines before the bell:

  • Delta Air Lines (DAL) – Delta jumped 3.8% in the premarket after the airline raised its current quarter forecast and issued an upbeat 2023 outlook, citing robust travel demand.
  • Tesla (TSLA) – Goldman Sachs cut its price target for Tesla to $235 per share from $305, citing softer demand. Tesla shares are down about 40% since the end of September, and briefly dipped below $500 billion in market value Tuesday.
  • Moderna (MRNA) – Moderna rose another 1.6% in premarket trading on top of yesterday's 19.6% gain. The Tuesday advance followed a successful study of a skin cancer treatment involving an experimental Moderna vaccine in combination with Merck's (MRK) cancer drug Keytruda.

Read the full list here.

— Peter Schacknow

Delta Air Lines rises on strong 2023 guidance

Delta Air Lines rose more than 3% on the back of new guidance for 2023.

The company sees adjusted earnings per share between $5 and $6 for next year. That's above a StreetAccount median of $4.77 per share. Delta also sees revenue increasing 15%-20% year over year.

"Demand for air travel remains robust as we exit the year and Delta's momentum is building," CEO Ed Bastian said in a statement.

— Fred Imbert

UK inflation falls from 41-year high as fuel price surge eases

U.K. inflation came in slightly below expectations at 10.7% in November, as cooling fuel prices helped ease price pressures, though high food and energy prices continued to squeeze households and businesses.

Economists polled by Reuters had projected an annual increase in the consumer price index of 10.9% in November, after October saw an unexpected climb to a 41-year high of 11.1%. On a monthly basis, the November increase was 0.4%, down from 2% in October and below a consensus estimate of 0.6%.

Read the full story here.

- Elliot Smith

European stocks retreat as markets digest inflation data; Fed outcome ahead

European stocks slipped on Wednesday as global markets digested new inflation readings and looked ahead to the U.S. Federal Reserve's monetary policy decision.

The pan-European Stoxx 600 was down 0.5% in early trade, with travel and leisure stocks shedding 2.2% to lead losses as all sectors and major bourses slid into the red.

- Elliot Smith

Markets expecting a 50bps rate hike on Wednesday

Markets are pricing in a 50 basis point rate hike from the Federal Reserve on Wednesday, its last meeting of the year.

The CME Fedwatch tool shows a nearly 80% chance that the central bank will raise its benchmark interest rate to 4.25% or 4.5%, which would be one-half of a percentage point from the current rate of 3.75% to 4.00%.

There's a roughly 20% chance that the Fed will go with another large, 75 basis point rate hike, according to the tool. That would mark its fifth consecutive hike of that size. One basis point is equal to one hundredth of a percent.

—Carmen Reinicke

Stock futures open little changed after Tuesday's positive session

Stock futures were flat Tuesday evening after markets were positive for the second day in a row. Traders are looking ahead to the Federal Reserve's interest rate decision, due Wednesday.

Futures tied to the Dow Jones Industrial Average were up 13 points, or 0.04%. S&P 500 and Nasdaq 100 futures were up 0.06% each.

- Carmen Reinicke