The stock market rose Wednesday afternoon after the Federal Reserve rolled out its inflation-fighting plan. The central bank raised interest rates by half a percentage point and began to reduce the size of its balance sheet, which swelled during the pandemic.
Dow Jones Industrial Average
gained 932 points, or 2.8%, after the announcement. the
increased by 3%, while
“Risk markets breathed a collective sigh of relief today as the Fed was not as hawkish as some feared,” said Jack McIntyre, portfolio manager at Brandywine Global.
This is the largest gain for the Dow Jones since November 9, 2020 and the largest gain for the S&P 500 since May 18, 2020.
The Fed announced that it was raising the target federal funds rate by half a percentage point to a range between 0.75% and 1%. The central bank also said it “expects continued increases in the target range to be appropriate” and that “the invasion [Russia and Ukraine] and related events are creating additional upward pressure on inflation.
Fed Chairman Jerome Powell also said the Fed was not considering a 75 basis point interest rate hike, a move markets feared.
The Fed will also begin to reduce its bond holdings. Expectations that the central bank would reduce its huge balance sheet have already driven the price of the 10-year Treasury note down and the yield higher.
But the markets were already anticipating the Fed’s decision.
The Fed had already made it clear that it was committed to reducing the recently high rate of inflation, a move that is expected to reduce economic growth. As a result, the S&P 500 had fallen 13% so far in 2022 to its closing low for the year, hit on Friday. This is accompanied by a spike in interest rates, with the 2-year Treasury yield reaching as high as 2.85% today, a significant increase from 0.73% at the end of 2021. The 10-year yield had risen from 1.51% at the end of 2021 to 3% on Tuesday.
These rates fell after the Fed signaled that it was not about to get even more aggressive in tightening monetary policy. The 2-year yield fell to 2.64% on Wednesday afternoon, and the 10-year yield fell to 2.92%.
Prior to the meeting, the bond market was expecting the fed funds rate to average 3% over the next two years. The market no longer expects this,
Ford Donohue, director of Hormich Berg, said.
This is the main reason stocks gained on Wednesday.
The S&P 500’s year-to-date decline implied that markets had already priced in Fed moves, as well as geopolitical risks and an economic slowdown, Scott Chronert wrote at
Geopolitical risks are certainly part of the picture for oil. The price of WTI crude oil gained more than 5% to over $108 a barrel as the EU proposed an import ban on Russian oil and refined petroleum products. It sent the
Energy Select Sector SPDR
Fund (XLE) to a new multi-year high, up 4.1% on Wednesday.
Elsewhere, the ADP jobs report found that the US economy added 247,000 private sector jobs in April, below forecasts for an increase of 390,000 jobs. Markets are now awaiting the Bureau of Labor Statistics’ job gains tally, released on Friday. Economists are looking for an increase of 400,000 non-farm jobs.
Overseas, the pan-European
fell 1.1%, and Hong Kong
Hang Seng Index
Here are seven stocks in motion on Wednesday:
Lyft (ticker: LYFT) fell 30% after the ride-hailing company’s outlook disappointed Wall Street.
UberTechnologies (UBER) fell 4.6% after the company reported better-than-expected first-quarter numbers and second-quarter guidance that beat analysts’ forecasts.
SVC Health (CVS) gained 4.8% after the group reported first-quarter adjusted earnings that beat analysts’ forecasts and the company raised its earnings range outlook for the year.
Marriott International (MAR) gained 4.7% after the company reported earnings of $1.25 per share, beating estimates of 90 cents per share, on sales of $4.2 billion, above expectations of $4.17 billion.
Global DiDi (DIDI) was down, before finishing flat. Other U.S.-listed Chinese tech stocks also initially fell, before gaining, as
Ali Baba (BABA) and
JD.com (JD) gained 1% and 1.6%, respectively. Regulatory pressures have been a sharp headwind for Chinese tech stocks over the past year, and DiDi said it faces a Securities and Exchange Commission investigation into its initial U.S. public offering in June 2021.
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