Surprise Fed Announcement Shakes Stock Market: Tech Stocks Hit Hard, What’s Next? (2024)

FAQs

How will the Fed announcement affect the stock market? ›

An announcement from the Federal Reserve ("the Fed") about a change in interest rates generally correlates directly to stock prices and trading activity. For example, if the Fed raises interest rates, then stock prices are liable to fall.

Since managers act in the interests of existing shareholders, there is an incentive to sell new equity when it is overvalued. Thus, selling equity on average conveys negative information about the firm, and the stock price drops at the equity issue announcement.

Typically, when something important and unexpected happens, stock markets will either go up or down, depending on the nature of the news.

A higher interest rate environment can present challenges for the economy, which may slow business activity. This could potentially result in lower revenues and earnings for a corporation, which could be reflected in a lower stock price.

As a general rule of thumb, when the Federal Reserve cuts interest rates, it causes the stock market to go up; when the Federal Reserve raises interest rates, it causes the stock market to go down.

As a general rule of thumb, when the Federal Reserve cuts interest rates, it causes the stock market to go up; when the Federal Reserve raises interest rates, it causes the stock market to go down.

If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.

At the peak of the business cycle, the economy is healthy and growing; stock prices for companies often reach all-time highs. During the recession phase of the business cycle, income and employment decline; stock prices fall as companies struggle to sustain profitability.

How fast can stock go up? ›

In most cases, these price changes are fairly gradual. But sometimes, the price can rise or fall astronomically in a matter of days. These sharp price swings can be caused by unexpected crises, such as wars or pandemics.

A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities.

Wall Street analysts' consensus estimates predict 3.6% earnings growth and 3.5% revenue growth for S&P 500 companies in the first quarter. Analysts project full-year S&P 500 earnings growth of 11.0% in 2024, but analysts are more optimistic about some market sectors than others.

As interest rates rise, the interest income from loans typically increases faster than the interest paid on deposits, leading to wider profit margins. Additionally, higher interest rates can boost the earnings of insurance companies and investment firms, as they often hold large portfolios of interest-sensitive assets.

The financial sector has historically been among the most sensitive to changes in interest rates. With profit margins that actually expand as rates climb, entities like banks, insurance companies, brokerage firms, and money managers generally benefit from higher interest rates.

FOMC meetings are mostly positive for the stock market. The FED's purpose is to address banking panics, maintain the stability of the financial system, contain systemic risk in financial markets, and strengthen economic growth.

The degree and timing of rate increases as well as investors' expectations also play a role in driving the stock market's reaction to increasing rates. The Federal Reserve typically raises rates in periods of stronger economic activity, which is when stocks are also doing well.

In other words, they argue that increase in money supply means that money demand is increasing in anticipation of increase in economic activity. Higher economic activity implies higher expected profitability, which causes stock prices to rise.

When the Federal Reserve increases the federal funds rate, it typically increases interest rates throughout the economy, which tends to make the dollar stronger. The higher yields attract investment capital from investors abroad seeking higher returns on bonds and interest-rate products.