Author: Tide Research
Wednesday, the Fed's dot plot showed half of the officials projecting a rate hike within the year. Walsh announced the abandonment of forward guidance during the press conference, triggering a decline of over 1% across all major indices, erasing gold's gains for the week, and sending the dollar to a two-month high. The optimism from Monday failed to last three days, thoroughly liquidated by the hawkish dot plot and a new chair who refused to offer policy signals.
Market Performance
The S&P 500 closed down 1.21% at 7,420.10 points, the Nasdaq fell 1.34% to 26,021.66 points, the Dow Jones lost 0.97% to 51,492.55 points, and the Russell 2000 dropped 0.74%. All four major indices fell in sync, marking the largest single-day decline so far this three-day week. The market remained restrained for most of the session, dipping only slightly upon the release of the FOMC statement. The real sell-off concentrated in the first thirty minutes of Walsh's press conference, with the S&P 500 plunging nearly 0.8% in a one-way slide and never recovering, as the indices closed near their daily lows.
SpaceX closed down about 5% at $191, marking its first drop since its IPO. After three consecutive days of hitting new highs, valuation pressure from the hawkish dot plot finally caught up with this stock with a market cap nearing $2.7 trillion. Option-implied volatility rose accordingly, formally ending the post-IPO honeymoon period.
Meta dropped over 5% to $586.20, leading the decline among the "Magnificent 7" tech giants, with Alphabet, Amazon, and Microsoft also falling. The entire Mag 7 faced unified pressure under the new interest rate framework, as the pricing logic for high-valuation tech stocks is being forcibly reset by hawkish expectations. The tech sector accounted for the majority of the Nasdaq's decline for the day.
The Philadelphia Semiconductor Index (SOX) bucked the trend to close up 1.38%, the only bright spot of the day. Applied Materials rose 9.3% to $214.60, Lam Research gained 6.6% to $97.40, and Arm Holdings climbed 6.2% to $182.30. Their logic was consistent: the long-term thesis of AI computing power demand remains intact despite interest rate shocks, with funds flowing out of interest-rate-sensitive software and internet stocks and finding buyers in the equipment and infrastructure layer.
Consumer Staples and Utilities, two defensive sectors, led the declines. Their valuations have long been supported by low interest rates, making them prime targets for repricing under renewed rate hike expectations. The rotation of funds from defense sectors to the earnings-supported computing power chain was the clearest directional shift of the day.
Macro & Outlook
The dot plot was the core event of the day. Among 18 officials, 9 projected at least one rate hike within the year, with 5 expecting two hikes and 1 expecting three. Only 1 official still projected a rate cut. The median projection for the end-2026 rate was sharply raised to 3.8% from 3.4% in March, formally signaling the end of the easing cycle. The statement was shortened by two-thirds, removing all interest rate guidance and leaving only a single sentence at the end: "committed to achieving price stability." This was the first unanimous vote on the policy statement in nine months.
During the press conference, Walsh stated, "I can't tell you what the next step is going to be," announcing the abandonment of forward guidance, while also reportedly not submitting a dot plot. This led to speculation that this might be the last dot plot. Trump, at the G7, called Walsh "very excellent" and said the idea of raising rates was "unbelievable," but he would listen to Walsh's wishes. The tension between the White House and the Fed has not dissipated, merely temporarily overshadowed by the hawkish shock of the dot plot.
May Retail Sales rose 0.9% month-over-month, hitting a three-year high. Last week's EIA crude oil inventories plummeted by 8.26 million barrels, far exceeding expectations, with Cushing stockpiles falling to a decade low. The combination of these two data points makes the expectation of persistently high inflation even harder to shake and makes any dovish stance more difficult to sustain.
The VIX jumped 12%, breaking above 18. The 2-year Treasury yield surged 13 basis points to 4.18%, while the 10-year yield rose about 7 basis points to 4.49%. Traders have now fully priced in a rate hike before October, with September seen as highly likely, and cumulative hikes of two times are expected before the first quarter of next year.
The dollar surged 0.86% to a two-month high. Gold fell 1.64% to $4,258 per ounce, with silver dropping nearly 3% in sync. Bitcoin (CoinGecko) fell to the $64,100 range, and Ethereum weakened to around $1,760. Crude oil settled flat near $76 after wild swings.
The US-Iran Memorandum of Understanding has been signed remotely, with the formal signing ceremony scheduled for June 19th in Switzerland. However, Trump explicitly stated that military action would be restarted if Iran fails to comply, leaving the timeline for reopening the Strait of Hormuz uncertain. Markets are closed Friday for the Juneteenth holiday. All the shockwaves from Walsh will be digested within a single trading session on Thursday.
Tide Perspective
Walsh's abandonment of forward guidance has one direct consequence in the markets: Wall Street has lost the anchor it could rely on. For the past decade, the Fed provided a roadmap, guidance, and dot plots, and investors priced assets along these clues. By dismantling this entire framework, Walsh has permanently raised the uncertainty premium by one notch.
The semiconductor sector's strength against the trend shows that the long-term AI computing power logic has not been overturned. However, Meta leading the decline and SpaceX's first drop indicate that the valuation reset for interest-rate-sensitive, high-valuation tech stocks under the new framework where "the possibility of hikes exceeds cuts" has just begun.
Hope for bulls lies in two places: if the US-Iran deal lands smoothly on the 19th, the easing of the energy risk premium could offer a respite; the semiconductor sector's resilience on this day already suggests that as long as the AI capital expenditure story holds, the equipment chain will have support.
However, if the market chooses to continue digesting the hawkish shock upon Thursday's open rather than waiting for geopolitical benefits, this downtrend is not yet over. Walsh's debut is over. The next question is: when he speaks next, will it be before a rate hike, or after.
