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Stocks rose amid trading on Wednesday, buoyed by comments from Federal Reserve Chairman Jerome. Powell, who said the FOMC isn’t looking for even more shock and awe to combat inflation. Investors breathed a sigh of relief that the most aggressive rate-hike schedule was likely off the table, sending major averages up nearly 3%.
After the Federal Reserve raised its key rate by 50 basis points, the biggest rate hike in two decades, Powell said the FOMC is not actively considering 75 basis point rate hikes, something many Wall Street banks have forecast. . Futures on the CME now have a more than 90% chance of a 50 basis point rise next month, with no chance of further momentum.
After uncertain trading ahead of the Fed’s mid-afternoon announcement, with major averages posting losses early in the session, the S&P (SP500) closed +3.0%. Last day’s rise also left the Nasdaq (COMP.IND) in +3.2% for the closure. The Dow (DJI) ended +2.8%.
Looking at the final numbers for the day, the Nasdaq jumped 401.10 points to close at 12,964.86. The Dow Jones advanced 932.27 points to finish at 34,061.06. The S&P rose to 4,300.17, up 124.69 on the day.
All 11 S&P sectors ended the session in the green. Energy led the advance, rising more than 4% amid a rebound in oil prices. Communication services, financials, information technology and materials posted gains of at least 3%.
The bond market also reacted to the Fed’s comment. Treasury yields moved lower, especially at the short end, after showing modest gains earlier in the day. The 10-year Treasury yield fell 2 basis points to 2.94% and the 2-year yield fell 13 basis points to 2.64%.
In its regularly scheduled policy announcement, the Fed raised rates by 50 basis points and said it will start reducing its holdings of Treasury securities, agency debt and agency mortgage-backed securities on June 1.
“Given everything we’ve heard from the Fed, fighting inflation is priority number one,” Guggenheim’s Scott Minerd said on Bloomberg TV. “That gives me a lot of confidence.”
“In the short term, I’m actually quite bullish (on bonds), I think rates will come down.”
“Beware of hawks talking about massive rate hikes,” Wedbush’s Dan Ives tweeted. “It’s like talking about salty or unsalted pretzels while the plane crashes if that happens. Fed (toed) the line here alright even though all the hawks are asking for more.
Earlier, stocks came under some selling pressure after April’s ISM Services Index posted an unexpected drop to 57.1.
“This is disappointing; Google’s mobility data pointed to a clear rise in the index as Omicron’s impact faded,” Pantheon Macro said. “The business activity component rose sharply, rising 3.6 points to 59.1, a three-month high, but new orders and employment fell 5.5 points and 4.5 points respectively.”
“We expect the uptick in the business activity index to be reflected in the overall index next month, but for now the index is flat.”
Read more about the Fed’s decision.
Reference-seekingalpha.com