US stocks drop post-FOMC Minutes, signals of a mild recession

The Dow Jones Industrials Index, the Nasdaq 100 Index ($IUXX) (QQQ), and the S&P 500 Index ($SPX) (SPY) all recorded losses on Wednesday. The S&P 500 Index ($SPX) (SPY) lost -0.41%.

The Nasdaq 100 posted a 2-week low on Wednesday, as stock indices gave up early gains before settling marginally down. Stocks started out higher on the better-than-expected CPI report, but they quickly fell after Richmond Fed President Barkin expressed his hawkish views, saying, “There is still more to do to get core inflation down to where we’d like it to be.”

Stock losses accelerated Wednesday afternoon when the minutes of the Mar 21-22 FOMC meeting showed policymakers projected a “mild recession” starting later in 2023.

Compared to estimates of +0.2% m/m and +5.1% y/y, the CPI reading for March in the United States increased by only 0.1% monthly and 5.0% annually. However, completely on target, the Mar CPI ex-food and energy increased to +5.6% y/y from +5.5% y/y in Feb. At the May 2-3 FOMC meeting, the markets presently predict a 74% chance of a 25 bp rate increase.

The minutes of the FOMC meeting on March 21–22 revealed that policymakers reduced their forecasts for rate increases this year, noting that “many participants had lowered their assessments of the federal funds rate target range that would be sufficiently restrictive given the likely effects of recent banking-sector developments on economic activity and inflation.”

A “mild recession” commencing in 2023 was predicted by Fed officials, according to the FOMC minutes, “given their assessment of the potential economic effects of the recent banking sector developments.”

According to the Mortgage Bankers Association’s weekly report, mortgage applications for house purchases increased by 7.8% week over week to a two-month high. The 30-year fixed mortgage contract rate in the United States also decreased for the fifth consecutive week, falling -10 bps to a two-month low of 6.3% in the week ending April 7.

Although inflation has a ways to go to reach the Fed’s 2% target, San Francisco Fed President Daly suggested that “the economy may be able to slow down enough on its own to accomplish that, even without further policy adjustments.”

The American Airlines Group posted preliminary Q1 adjusted EPS that was below the consensus, which caused airline stocks to decline by more than 9%. Additionally, media stocks fell after Bloomberg Intelligence predicted that 1.55 million video subscribers will cut the cord in the first quarter.

Warren Buffett also stated that more U.S. banks are likely to fail and that troubled bank stocks aren’t valuable investments since owners will probably be wiped out even if the government takes action to safeguard depositors. This caused regional bank stocks to decline.