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Stocks sold off Wednesday after the Federal Reserve did as expected and held its benchmark overnight lending rate steady, but signaled a growing concern with inflationary pressures. The main U.S. equity indexes opened lower on hotter-than-expected wholesale price data, and crude oil’s continuing rise helped keep a lid on risk appetite. The conclusion of the Fed meeting weighed on most sectors and industries late in the trading session.
In January, the FOMC statement said the unemployment rate had “shown some signs of stabilization.” The Fed’s view in the aftermath of the February jobs report is that unemployment “has been little changed in recent months.”
Meanwhile, as was the case after the January meeting, “Inflation remains somewhat elevated.” This, however, is new: “The implications of developments in the Middle East for the U.S. economy are uncertain.”
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During his post-meeting press conference, outgoing Fed Chair Jerome Powell said he will stay in his current position until Kevin Warsh is confirmed and that he’ll remain on the board until the Justice Department investigation of the central bank is concluded.
Powell also said he would reserve the term “stagflation” for a “much more serious set of circumstances. That is not the situation we’re in. It’s a very difficult situation, but it’s nothing like what they faced in the 1970s.”
We continue to follow news and developments around the March Fed meeting on our live blog.
Before the opening bell, the Bureau of Labor Statistics (BLS) said the Producer Price Index (PPI) increased by 0.7% month over month in February, accelerating from 0.5% in January and exceeding a consensus forecast for 0.3%. PPI rose 3.4% year over year, up from 2.9% and above a 3.0% forecast.
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Core PPI, which excludes food and energy prices, was up 0.5% on a monthly basis, decelerating from 0.8% but exceeding a Wall Street estimate of 0.3%. Core PPI heated up from 3.6% to 3.9% on an annual basis and also topped the consensus forecast.
“Given that the February CPI and PPI reports do not capture price increases associated with disruptions to the flow of oil and agricultural inputs through the Strait of Hormuz,” William Blair analyst Richard de Chazal writes, “we expect future reports to reflect upward pressure in these categories.”
At the closing bell, the blue-chip Dow Jones Industrial Average was down 1.6% at 46,224, the broad-based S&P 500 was off 1.4% at 6,624, and the tech-heavy Nasdaq Composite had lost 1.5% to 22,152.
What is the Jones Act?
Energy stocks were lower on Wednesday after President Donald Trump announced a 60-day suspension of a 1920 federal law known as the Jones Act, which requires goods shipped between U.S. ports to be transported on U.S.-built, -owned and -crewed vessels.
The White House described the move as “just another step to mitigate the short-term disruptions to the oil market as the U.S. military continues meeting the objectives of Operation Epic Fury.”
According to White House Press Secretary Karoline Leavitt, “This action will allow vital resources like oil, natural gas, fertilizer and coal to flow freely to U.S. ports for 60 days.”
Chevron (CVX, +0.3%), the second-biggest oil and gas company in the U.S., posted the biggest gain among Dow Jones stocks on Wednesday, though fellow integrated supermajor Exxon Mobil (XOM, -0.8%) was down for the day.
In a separate move, the Treasury Department approved a license authorizing certain transactions between established U.S. companies and Venezuela’s state-owned oil company PDVSA.
“This license will benefit both the United States and Venezuela,” a spokesperson for the Treasury Department told Agence France Press, “while supporting the global energy market by increasing the supply of available oil.”
Despite the additional effort to mitigate the broader impact of the war in the Persian Gulf, the front-month West Texas Intermediate (WTI) crude futures contract was up more than 2% and has now risen nearly 55% since the Fed last met in January.
Crash landing for Gemini Space Station
Gemini Space Station (GEMI, -16.2%) came crashing down after Citi analyst Peter Christiansen downgraded the cryptocurrency exchange, which completed an initial public offering (IPO) in September.
“We have increasing concerns the company will be challenged to scale profitability within a reasonable time frame for equity investors and remain competitive (where network effects are crucial),” Christiansen writes, “particularly in challenged crypto environments.”
The analyst cut GEMI to Sell from Neutral and reduced his 12-month target price from $13 to $5.50. Gemini priced its IPO at $28 per share, a $3.3 billion valuation, and raised $425 million. GEMI shed about $134 million from its market cap on Wednesday.