|  Updated: 

US Fed rate hike rally runs out of steam as Wall Street tumbles

In the US the 2024 Presidential Election campaign will begin in earnest with the Iowa caucus on Monday.
In the US the 2024 Presidential Election campaign will begin in earnest with the Iowa caucus on Monday.

Wall Street bottomed out today after the rally triggered by the US Federal Reserve yesterday flexing its inflation fighting muscles ran out of steam.

Traders ditched stocks as they brace for Fed chair Jerome Powell and fellow rate setters following an extremely hawkish path on interest rates.

The tech-heavy Nasdaq, which has suffered heavy losses since the start of the year on the prospect of a higher rate environment, collapsed over four per cent, plunging it even further into bear market territory.

The S&P 500, seen as a bellwether of corporate America and also in bear market territory, shed 3.41 per cent. The Dow Jones tumbled 2.69 per cent.

The Fed yesterday sent interest rates 75 basis points higher to between 1.5 and 1.75 per cent, the steepest hike since 1994.

US stocks initially bounced on the news as investors were buoyed by the prospect of the Fed getting serious about inflation.

However, America’s main indexes today gave up those gains due to interest rate risks intensifying.

Powell did not rule out further 75 basis point rises in the coming months and some experts have forecast the Fed could eventually take them to four per cent.

Higher rates tend to weigh on stocks by making fixed income assets such as bonds more attractive. Elevated borrowing costs also knock companies’ valuations and weigh on spending, which, in theory, hurts businesses’ bottom lines.

Traders poured in safer assets, possibly as a shield against the possibility of the Fed tipping the US into recession through tightening policy rapidly.

Yields on 10-year Treasuries, the global interest rate benchmark, dropped 0.046 points to 3.351 per cent. Prices rise when yields fall.

European stocks also took a pummelling, with the pan-European Stoxx 600 closing 2.31 per cent lower and Germany’s Dax 30 fell 3.31 per cent.

Switzerland’s central bank today also waded in on the global tightening cycle by signing off a shock 50 basis point hike, the first rise in 15 years, to minus 0.25 per cent.