Trading Day – US Federal Reserve hikes rates – stocks fall

The US Federal Reserve delivered its fourth consecutive 0.75% rate hike to 4.00%, and Jerome Powell remained hawkish.

Despite conceding that they might start slowing the pace of tightening soon, he indicated that rates might have to go higher than previously expected.

Meanwhile, Twitter is rumoured to be planning a 50% cut to its workforce as soon as Friday.

US markets fell sharply following a hawkish Fed press conference, with the S&P 500 closing 2.5% lower and the Nasdaq falling 3.4%.

The Nikkei 225 is mostly flat in early morning trade, down 0.1%. The Hang Seng’s rebound proved short-lived, as the index fell 2.7% this morning.

In other news, Streaming platform Roku’s share price dropped more than 20% in after-hours trading on weak forecasts for the next quarter.

Here is the biggest news of the day.

• The US Federal Reserve has delivered its fourth consecutive 0.75% rate hike to 4.00%, the highest level since 2008. Fed Chair Jerome Powell indicated that they might start to slow the pace of tightening as early as the next meeting but emphasized that it is premature to start talking about pausing. He also noted that rates will likely have to go higher than what was initially expected and that they will likely need to stay high for longer. Powell indicated that the Fed would be biased towards overtightening, if need be, to ensure inflation does not become entrenched. He noted that they have the tools necessary to support the economy in such an event as they demonstrated during Covid.

• Twitter insiders are expecting a 50% cut in the workforce that could affect around 3,700 employees. According to rumours, a calendar item for a meeting related to the reduction in workforce was made widely visible, possibly accidentally, to employees at Twitter on their internal systems. A lay-off list is expected to be made available as early as Friday, and reportedly managers across product teams have already been asked to draw up a list of potential employee reductions.

• Streaming platform Roku’s share price dropped more than 20% in after-hours trading on weak forecasts. Roku CEO Anthony Wood said that they expect ad spending in the TV scatter market to degrade due to weak consumer spending but noted that they expect this to be temporary. Roku expects 4th quarter revenue of $800 million, down from $865 million last year and well below analyst expectations of $895 million. Roku still managed to add 2.3 million active accounts in the 3rd quarter, much higher than the 1.3 million net additions a year ago and closely competing with the 2.4 million new subscribers that Netflix added. The company turned from earnings per share of $0.48 last year to making a loss of $0.88 per share.

• Qualcomm shares fell 7% in after-hours trading despite meeting earnings expectations. Earnings per share (EPS) came in at $3.13, in line with analyst expectations. Revenue slightly beat expectations with $11.39 billion, growing 22% year-over-year. Qualcomm offered weak guidance for the next quarter, with earnings per share (EPS) between $2.25 and $2.45 on revenue of between $9.2 billion and $10 billion. The company also announced that it would be implementing a hiring freeze.

• Robinhood made a smaller-than-expected loss after cutting 25% of its workforce in August. The company posted a loss per share (LPS) of $0.20, beating analyst expectations of -$0.31. Revenue also beat expectations coming in at $361 million. The company, however, continues to bleed users, losing 1.8 million monthly active users. It leaves it with 12.2 million monthly active users – its lowest level since it was listed.

• Datatec reports a significant drop in earnings despite growing revenue. The company reported headline earnings per share of 4.7 US cents for the half-year ended August, down 25%. Revenue grew 9% to $2.45 billion. Net asset value per share declined 14% to $2.50, but the company managed to pay down 25% of its debt, leaving it with a net debt of $115 million.