Stock market sell-off: Investors ‘are changing their focus,’ market strategist explains

The stock market is on track to take a leg lower this week as investors swerved to assess what kind of damage the Federal Reserve has already done to the economy following a series of aggressive inflation-fighting rate hikes.

“We believe that yesterday was yet another example of how investors are changing their focus… from what the Fed is going to do… to what the Fed has already done… and what their significant tightening policy will do to the economy in 2023 (now that it is finally beginning to have its real impact),” Matt Maley, chief market strategist at Miller Tabak, explained in a client note on Friday.

Maley’s caution comes after a two-day major downdraft in markets following the Fed’s rate decision on Wednesday.

In the past two days alone, the S&P 500 has shed more than $1.1 trillion in total market value. The Dow Jones Industrial Average is down about 4% since Wednesday. Apple stock (AAPL), a market bellwether, has fallen more than 4% since mid-week.

Selling accelerated after the Fed delivered a 50 basis-point interest rate hike, bringing the benchmark rate to the highest level since 2007. The central bank also surprised market watchers in two more ways.

First, the Fed’s updated economic forecasts showed that officials see rates peaking at 5.1% in 2023. That’s an extra 50 basis points higher than they predicted back in September.

Second, Fed Chair Jerome Powell sounded more hawkish on the central bank’s policy path than some expected.

And the dour read on holiday retail spending for November also didn’t help the increasingly fragile market sentiment.

On Thursday, the November retail sales report showed a decline of 0.6% from the prior month. Online retailers, general merchandise, and clothing stores all reported sales declines as shoppers pulled back on discretionary items amid higher prices and a slowing economy.

In light of the barrage of recent negative headlines, experts such as Miller Tabak’s Maley are bracing for a wild few final days of trading in 2022.

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“We have been thinking that the market would either surprise people by falling in a significant way into the end of the year (like it frequently does during bear markets)… OR the rally would continue well into January of next year before it rolled back over in a substantial manner,” Maley added. “However, it’s starting to look like any surprise will involve the former… rather than the latter. The action in the stock market early next week should be the time when we get the definitive answer.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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