US STOCKS-Wall St ends sharply lower after Powell warns inflation fight continues

By Stephen Culp

NEW YORK, March 22 (Reuters) –

Wall Street gyrated to end sharply lower on Wednesday after the U.S. Federal Reserve delivered a widely expected 25 basis point policy hike, while hinting that it was on the verge of pausing future increases in view of recent turmoil in the financial sector.

The three major U.S. stock indexes, which were mostly directionless prior to the Fed announcement, jumped higher then deflated as investors digested the accompanying statement and Chair Jerome Powell’s subsequent Q&A session.

By closing bell, all three indexes were red.

“The market was encouraged when it heard that the Fed had considered pausing completely and then it was disappointed when Powell clarified that their hands weren't tied and that they can keep raising rates if they need to,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.

In the Fed’s statement, the members of the Federal Open Markets Committee (FOMC) said some additional tightening might be possible, but suggested it was on the verge of pausing future hikes in view of recent turmoil in the financial sector.

Gains pared during Powell’s remarks and Q&A session in which he vowed to use all available tools to keep the banking system sound, but reiterated the central bank’s commitment to reining in inflation.

“The indexes whipsaw because there's so much at stake, being the first to evaluate the impact of the statement and the subsequent press conference,” said Sam Stovall, chief investment strategist of CFRA Research in New York. “Maybe investors were expecting the Fed to stop with this hike, expressing their displeasure that rate hikes might continue for one or two more meetings.”

Worries persist that the Fed’s aggressive battle against inflation could tip the economy into recession, and recent turmoil in the banking sector, sparked by failures of SVB Financial Group and Signature Bank, have exacerbated those fears.

According to preliminary data, the S&P 500 lost 66.35 points, or 1.66%, to end at 3,936.52 points, while the Nasdaq Composite lost 190.93 points, or 1.61%, to 11,669.18. The Dow Jones Industrial Average fell 535.92 points, or 1.65%, to 32,024.68.

The banking sector reversed course after a two-session rebound, with the S&P Banks index and the KBW Regional Bank index both ended the session red.

Shares of First Republic slipped in volatile trade amid worries that it may need to downsize or seek government support.

Pacific Western Bank announced it had raised $1.4 billion from investment firm Atlas SP Partners. Its shares closed lower.

Retail darling GameStop Corp surged after posting a surprise fourth quarter profit.

Other so-called “meme stocks” which were at the heart of the social media-driven retail frenzy in 2021, AMC Entertainment Holdings Inc and Koss Corp, advanced.

Used car e-commerce platform Carvana Co jumped following its announcement that it expects a smaller current quarter loss as a result of cost-cutting measures.

Virgin Orbit Holdings Inc soared after Reuters reported the satellite launch firm is nearing a deal to raise $200 million from venture capital investor Matthew Brown.

Nike Inc lost ground after the sports apparel maker raised its full-year revenue outlook on Tuesday but warned of margin pressures. (Reporting by Stephen Culp in New York; Additional reporting by Sinead Carew in New York, Amruta Khandekar and Shubham Batra in Bengaluru; Editing by Marguerita Choy)