US stock market rebounds after Fed rate hike

0

U.S. stocks soared on Wednesday after the Federal Reserve approved its biggest interest rate hike since 1994, but suggested moves of this magnitude are unlikely to become commonplace.

The S&P 500 rose 54.51 points, or 1.5%, to 3789.99, ending a five-day losing streak. The Dow Jones Industrial Average added 303.70 points, or 1%, to 30,668.53, and the Nasdaq Composite rose 270.81 points, or 2.5%, to 11,099.15.

The Fed’s move is its latest effort to curb inflation through tighter monetary policy. Investors largely expected the Fed to raise its benchmark short-term rate by 0.75 percentage points. What some feared before Wednesday’s interest rate decision was that the Fed would have to raise interest rates at an even more aggressive pace.

At a news conference following the decision, Fed Chairman Jerome Powell said Wednesday’s decision was “an unusually significant move.” He added that he expected an increase of 0.50 percentage points or 0.75 percentage points at the Fed’s July meeting.

Ultimately, guidance from the Fed on the direction of interest rates on Wednesday is more important to markets than the magnitude of the rate hike, said Dorian Carrell, fund manager at Schroders. Uncertainty over monetary policy has been a key driver of volatility this year, helping to send the S&P 500 on Monday into bearish territory, down at least 20% from a previous high.

“Markets are pricing in a Fed trying to get ahead of the curve rather than behind the inflation curve,” said Art Hogan, chief market strategist at National Securities. That helped lift stocks ahead of Wednesday’s rate decision, Hogan added.

Stocks rose overall, with 10 of the 11 S&P 500 sectors ending higher.

Tech stocks, which have been among the hardest hit sectors in the market this year, were among the biggest gainers. Microsoft,

Nvidia,

Amazon.com and Netflix each added around 3% or more.

The Fed’s interest rate decision was displayed on a screen Wednesday on the floor of the New York Stock Exchange.


Photo:

BRENDAN MCDERMID/REUTERS

Economically sensitive sectors of the market also increased. Bank stocks, which had sold off on investor fears of slowing growth, climbed on Wednesday, with the KBW Nasdaq Bank index up 1.6%.

Energy stocks fell, marking a relatively rare setback for the best-performing S&P 500 sector of the year. The S&P 500 energy sector fell about 2.1%.

Meanwhile, US government bonds rallied after falling in recent weeks in a sell-off that pushed yields to their highest levels in more than a decade. The yield on 10-year Treasury bills slipped to 3.389% from 3.482% on Tuesday. Yields, which fall as bond prices rise, help set rates for everything from mortgages to federal student loans to auto loans.

Elsewhere, European stocks and the prices of peripheral eurozone government bonds jumped after the ECB held an ad hoc meeting on Wednesday to discuss turmoil in the region’s bond markets.

The ECB outlined a plan to buy more bonds from weaker eurozone governments under an existing bond-buying program. He instructed ECB staff to fast-track the design of a new instrument that would reduce borrowing cost differentials across the region, tackling financial imbalances that have long been a problem for the monetary union.

“They wanted to make sure the funding conditions didn’t deteriorate too much,” said Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management. He said the meeting signaled that the ECB was ready to cushion markets ahead of investors’ expectations.

The Stoxx Europe 600 rose 1.4%, driven by shares of banks and insurers. Shares of Italian banks, which hold a large share of government bonds, suffered as the price of debt fell. Intesa Sanpaolo and UniCredit were among the best performers in the European market on Wednesday.

Where in the US household budget is inflation hitting the hardest? The WSJ’s Jon Hilsenrath traces the roots of rising prices to understand why some sectors have risen much more than others. Photo illustration: Laura Kammermann/WSJ

Corrections & Amplifications
The Dow Jones Industrial Average mid-afternoon on Wednesday was trading at 30669. An earlier version of this article incorrectly stated that it was trading at 20639. Additionally, 10-year government bond yields in Italy stood at 4.111% on Tuesday. An earlier version of this article incorrectly stated that yields stood at 4.067%. (Corrected June 15)

Eric Wallerstein contributed to this article.

Write to Joe Wallace at joe.wallace@wsj.com and Akane Otani at akane.otani@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Share.

Comments are closed.