US stocks lose ground on news of Fed’s plans to cut stimulus

The Dow Jones index has fallen back from another record high after the US central bank said it might need to raise interest rates sooner than expected and cut its bond holdings to curb inflation.

Key points:

  • At 7:10am AEDT, the Dow Jones index had fallen 0.6pc, to 36,590, the S&P 500 fell 1.2pc, to 4,734, while the Nasdaq Composite lost 2.5pc, to 15,243
  • In London, the FTSE 100 rose 0.2pc,  to 7,517, the DAX in Germany rose 0.7pc, to 16,272, and the CAC 40 index rose 0.8pc, to 7,376
  • The ASX SPI 200 index fell 0.5pc, to 7,579, while the Australian dollar fell 0.25pc, to 72.20 US cents at 7:20am AEDT

Minutes from the Federal Reserve's December policy meeting outlined plans to start reducing the more than $US8 trillion ($11.1 trillion) in bonds it is holding. 

Officials said a reduction in the balance sheet would likely start after the central bank starts raising interest rates, which is expected during this year, possibly in March. 

"Almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate," the minutes said. 

Last month, the Fed said it would end its pandemic-era bond-buying program in 2022 and it indicated there would be at least three interest rate rises for the year. 

The S&P 500 and Nasdaq extended their losses while the Dow Jones index turned lower after the minutes were released. 

At 7:10am AEDT, the Dow Jones index had fallen 0.6 per cent, to 36,590, the S&P 500 fell 1.2 per cent, to 4,734, while the Nasdaq Composite lost 2.5 per cent, to 15,243. 

Technology giants once again took a hit with Apple, Alphabet, Amazon, Meta (Facebook) and Microsoft weighing on the market.

Technology firms have depended on low interest rates and cheap money to expand. 

Real estate stocks also fell because of the prospect of higher interest rates. 

David Carter from Lenox Wealth Advisors said the Fed was more aggressive than predicted in wanting to wind back stimulus.

"This is more hawkish than expected," Mr Carter said.

"This shift towards hawkishness could be problematic for both stock and bond markets."

In futures trade, the ASX SPI 200 index fell 0.5 per cent, to 7,579 at 7:20am AEDT, indicating a likely drop on the local share market when it opens later today. 

The Australian dollar had slipped 0.25 per cent, to around 72.20 US cents, at 7:20am AEDT.

European stocks rose to new highs, with the STOXX 600 index closing at its third record high in a row.

In London, the FTSE 100 rose 0.2 per cent, to 7,517, the DAX in Germany rose 0.7 per cent, to 16,272, and the CAC 40 index rose 0.8 per cent, to 7,376. 

In economic news, the ADP National Employment report showed that US private payrolls had increased by 807,000 jobs last month, more than double what had been forecast. 

The report comes ahead of the US Labor Department's official unemployment figures for December that are due out on Friday.

Meanwhile, Brent crude oil rose 0.5 per cent, to $US80.42 a barrel, while spot gold fell 0.2 per cent, to $US1810.47 an ounce.



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