Dow Jones Industrial Average falls 300 points after yesterday’s Fed rate hike

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December 20, 2018 12:56pm INDEXDJX:.DJI NYSE:DIA

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From Thomas Franck: U.S. stocks swooned for a second day Thursday after the Federal Reserveraised benchmark interest rates and said that it would continue to let its massive balance sheet shrink at the current pace. Fears of a government shutdown also weighed on stocks.

The Dow Jones Industrial Average fell 300 points, bringing its two-day declines to more than 600 points. The S&P 500 fell 1 percent as consumer staples and discretionary stocks underperformed. The Nasdaq Composite fell 1.2 percent, but was well off its lows, which had pushed the index into bear market territory as Facebook, Apple, Amazon, Netflix and Alphabet all declined.

Until now, December has never been the S&P 500?s worst month of the year.

The moves Thursday came one day after the Fed decided to hike its benchmark overnight lending rate by one quarter point in the prior session. The Dow fell more than 350 points following the Fed’s decision and pushed the major indexes to new lows for the year.

For traders, the Fed’s statement and Chairman Jerome Powell’s subsequent press conference did not suggest that the central bank would slow its pace of rate hikes as quickly as some had hoped.

Commenting on the central bank’s decision, renowned hedge fund manager David Tepper said in an email to CNBC’s Joe Kernen that Powell “basically told you the Fed put is dead ” and that “cash is not so bad” as an investment.

“The Fed doesn’t care about the stock market within 400 SPX (S&P 500) points,” Tepper added in the email. “It’s the real economy, stupid.”

Investors were on edge Thursday as Congress’s deadline to pass a government funding bill neared. The U.S. Senate on Wednesday approved funds for several federal agencies to keep them operating through Feb. 8 without the $5 billion to build a wall on the U.S.-Mexico border that President Donald Trump had demanded.

“The President is having a meeting with Republican House Members at noon today. At this moment, the President does not want to go further without border security, which includes steel slats or a wall. The President is continuing to weigh his options,” White House Press Secretary Sarah Sanders said in a statement.

Trump has left the door open to vetoing the spending bill. The White House has repeatedly said he will look at what Congress passes before deciding whether to sign it.

“We’ve seen this movie before. … For Trump, he needs to be the center of attention,” said Maris Ogg, president at Tower Bridge Advisors. “If he threatens to veto, it puts him at the center of attention, but will he actually do it? I doubt it.”

“There are only three things that matter: earnings, interest rates, and the dollar,” she added. “I think the more concerning thing is that we’re starting to see in earnings announcements that it seems as if the momentum is slowing in more industries than even a month ago.”

Also weighing on sentiment Thursday, the Trump administration and more than a dozen international allies condemned Beijing for what the coalition views as continued efforts by the Chinese to steal other countries’ trade secrets.

The market’s has more to do with tax loss selling and forced redemptions, said Peter Boockvar, chief investment officer at Bleakley Advisory Group. Boockvar added that the shutdown is not a factor and that the S&P broke through February’s lows.

It’s in “no man’s land,” he said.

Many market participants cited the Fed’s decision to allow its balance sheet to run off at its current pace for much of Thursday’s volatility.

The Fed currently is allowing $50 billion a month to run off its massive debt balance sheet as its securities mature. The balance sheet is mostly a collection of bonds the central bank purchased to vitalize the economy during and after the financial crisis.

“We, too, were very vocal in recommending heavily that the Fed not hike yesterday,” said Julian Emanuel, chief equity strategist at BTIG.

“This is all about the speed of things,” Emanuel added. “The problem with ignoring the consequences of the balance sheet reduction really tells you that the Fed is not paying attention to that fact that financial markets correct much more rapidly on the downside than they do in bull markets to the upside.”

The Dow and S&P 500, which are both in correction territory, are on track for their worst December performance since the Great Depression in 1931, down more than 8 percent and 9 percent, respectively. The S&P 500 is now in the red for 2018 by 6.3 percent.

–CNBC’s and Gina Francolla contributed reporting.

The SPDR Dow Jones Industrial Average ETF (DIA) was trading at $230.98 per share on Thursday afternoon, down $2.44 (-1.05%). Year-to-date, DIA has declined -5.85%, versus a -6.39% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 82 ETFs in the Large Cap Value ETFs category.

This article is brought to you courtesy of CNBC.

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