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Wall Street Indices Decline Despite Fed’s Reassurances on Inflation

Wall Street indices declined despite the Federal Reserve’s reassurances on inflation,
as volatility in tech stocks and the central bank’s stance created a sense of caution in the markets.

Contents

• Indices
• Less Hawkish Tone
• Tech Stocks
• Markets
• Future Outlook

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Indices

Financial markets saw a decline in stocks and a rise in bond yields, though the overall volatility remained limited following Federal Reserve Chairman Jerome Powell’s press conference, which helped ease concerns about rising inflation.

The QQQ ETF, valued at $328 billion and tracking the Nasdaq 100 Index, experienced fluctuations in after-hours trading. Meanwhile, Tesla’s stock rebounded after an initial drop following its earnings report, whereas Microsoft shares fell due to slowing cloud computing growth in the last quarter of 2024.

The Federal Open Market Committee (FOMC) maintained interest rates in the 4.25% – 4.5% range, stating that inflation remains “somewhat elevated” without signaling any substantial progress toward its 2% target. Powell later clarified that this phrasing was merely a condensed version of a longer statement in the official report and not an indication of a policy shift.

Less Hawkish Tone

Peter Boockvar, author of The Boock Report, commented that Powell sought to reassure markets that there was no major reason for concern.
He emphasized that the wording adjustments in the Fed’s statement regarding labor markets
and inflation should not be interpreted as a significant policy change.

Similarly, Krishna Guha from Evercore noted that Powell’s remarks were “noticeably less hawkish” compared to previous statements.

On the market front, the S&P 500 fell 0.5%, the Nasdaq 100 declined 0.3%,
and the Dow Jones Industrial Average dropped by the same percentage.
Meanwhile, the 10-year Treasury yield rose by 2 basis points to 4.55%.

In the currency market, Bloomberg’s dollar index showed little change,
while the Canadian dollar pared losses after the Bank of Canada cut interest rates but refrained
from giving any guidance on future borrowing costs.

Tech Stocks

The recent volatility in major tech stocks has raised concerns on Wall Street,
as the performance of the S&P 500 is now highly concentrated in a few large-cap companies—a scenario not seen in over 20 years.

According to Michael Hartnett, a strategist at Bank of America,
fewer than one-third of companies in the index have outperformed the S&P 500 over the past two years.
This situation mirrors the conditions before the dot-com bubble of the late 1990s.

The risks of this concentration became evident this week when Nvidia lost nearly half a trillion dollars in market value
following the launch of the DeepSeek application.
Torsten Slok from Apollo pointed out that while this tech correction was triggered by DeepSeek,
the broader issue of high concentration risk in the S&P 500 remains unchanged.

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Markets

Market analysts have mixed views on the impact of the Fed’s latest decisions:

• Evan Vincent (Tigress Financial Intelligence): There is no fundamental change in the Fed’s outlook.
  Powell sees inflation gradually declining while labor and housing markets improve, supporting stock prices.
• Scott Colyer (Advisors Asset Management): Powell’s comments indicate the Fed wants more data before making decisions,
  but they remain optimistic about progress in fighting inflation and the strength of the job market.
• Frank Monkam (Buffalo Bayou Commodities): The Fed has not made any catastrophic mistakes so far.
  While their stance is slightly hawkish, any market dip could present a good buying opportunity.
• David Russell (TradeStation): The Fed’s statement had a mildly hawkish tone,
  but policymakers are waiting for further data before the critical March meeting.
• Seema Shah (Principal Asset Management): The Fed is carefully monitoring economic data and government policies.
  If inflation reports show a further decline next month, along with slight labor market weakness,
  the Fed could adopt a more dovish tone.
• Samir Samana (Wells Fargo Investment): A strong economy and labor market support corporate earnings growth,
  making large-cap U.S. stocks and sectors like energy, financial services, and industrials attractive investments.
• Greg McBride (Bankrate): Inflation’s progress toward 2% has stalled, and the Fed acknowledges this.
  There were no signals in the post-meeting statement suggesting a rate cut in March.
• Jeffrey Roach (LPL Financial): The Fed will likely keep rates unchanged in March,
  as strong household income growth continues to push inflation higher in the services sector.

Future Outlook

Markets remain in wait-and-see mode, anticipating key inflation and employment reports,
which will shape the Fed’s monetary policy in the coming months.
As the U.S. economy and labor market remain resilient, investors are looking for clearer signals regarding interest rates
and their impact on stock market performance.

Wall Street Indices Decline Despite Fed’s Reassurances on Inflation