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U.S. stock indexes were trading near near session highs Wednesday afternoon, after the Federal Open Market Committee delivered the first 50 basis-point interest rate hike since 2000 and outlined plans to reduce its near $9 trillion balance sheet.
Oil prices were up on news that the EU has proposed a ban on Russian oil.
How are stocks trading?
-
The Dow Jones Industrial Average
DJIA,
+2.70%
rose 666 points, or 2%, to 33,791 -
The S&P 500
SPX,
+2.81%
climbed 84 points, or 2%, to 4,259 - The Nasdaq Composite rose 250 points, or 2%, at 12,812.
On Tuesday, the Dow industrials
DJIA,
rose 67.29 points, or 0.2%, to close at 33,128.79, the S&P 500
SPX,
gained 0.5% to finish at 4,175.48. The Nasdaq Composite
COMP,
added 0.2% to end at 12,563.76.
What’s driving markets?
The Federal Reserve pulled the trigger on a half percentage point interest rate hike, as expected, and announced the start of “quantitative tightening,” or reducing its near $9 trillion balance sheet.
See: Fed lifts interest rates by 1/2 point and to launch sell-off of $9 trillion bond stockpile in June
The move was the biggest from the U.S. central bank since 2000 when President Bill Clinton occupied the White House, and comes as Fed Chairman Jerome Powel works to cool hot inflation without setting off an economic recession.
The central bank also outlined a process to slash its balance sheet, first by $47.5 billion a month starting in June, but ramping up to $95 billion a month.
Powell talked about a strong economy, but also the pain consumers have been feeling at the grocery store and gas pump, in afternoon news conference, saying higher interest rates are the cure.
To that end, Powell said additional 1/2 percentage point increases should be on the table at subsequent meetings, but ruled out a 75-basis-point increase for now.
Clarity from the Fed on size and scope of future rate increases could give beleaguered stocks a lift, say some analysts.
“Honestly, I think this hiking cycle is going to be quite a bit shorter than the market is pricing in right now,” said Bill Callahan, investment strategist at Schroders, by phone, after the Fed decision.
“I think the Fed sees the slowing economic data, and I think they are raising rates now as quickly as possible so they have some ammunition to cut on the other side of this.”
Russell Price, chief economist at Ameriprise Financial, said the question is what factors will be in play that Fed officials look at in terms of how long to continue with 50 basis point hikes.
“In the early 1990s, we were able to go through a rate-hiking cycle and avoid an economic downturn,” he said, by phone. “Quite frankly, it’s the only time we’ve achieved a soft landing in the last five interest rate hiking cycles.”
Bryce Doty, senior portfolio manager at Sit Fixed Income, expected Powell to kick off an aggressive path to tighter financial conditions, but warned “there is more pain to come as yields continue to move higher,” even with “the carnage incurred by bond investors so far this year.”
“While the worst may be over in terms of bond market losses with the Bloomberg Aggregate Bond Index down 9.5% in the first four months of the year, inflation is still a problem,” Doty said in emailed comments Wednesday.
The yield on the 10-year Treasury note
TMUBMUSD10Y,
was down 4 basis point at 2.92%, while that of the 2-year
TMUBMUSD02Y,
was off 10 basis points to 2.65%.
There also was a slew of U.S. economic data, with private payrolls climbing by 247,000 in April, according to the ADP National Employment Report released Wednesday. Economists polled by The Wall Street Journal had forecast a gain of 390,000 private sector jobs.
“In April, the labor market recovery showed signs of slowing as the economy approaches full employment,” said Nela Richardson, chief economist at ADP.
The U.S. trade deficit also jumped 22.3% to record $109.8 billion in March, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis said Wednesday. U.S. imports climbed 10.3% to $351.5 billion, while U.S. exports increased 5.6% to $241.7 billion in March.
In addition, the Institute for Supply Management purchasing managers index for services sector showed weaker new-orders growth and employment, with the number dropping to 57.1% in April from 58.3%, below forecast.
Oil was also in focus, with prices for both Brent
BRN00,
BRNN22,
and West Texas Intermediate crude
CL00,
CLM22,
up 5% each after the European Union proposed banning Russian oil imports under a phased six-month plan, and refined products within a year.
The move would be part of a sixth batch of EU sanctions against Russia over its invasion in Ukraine that began in late February.
Investors are also digesting a fresh batch of corporate earnings on Wednesday also, with results expected from eBay Inc.
EBAY,
and Etsy Inc.
ETSY,
among others, after the close.
Which companies are in focus?
-
Shares of Moderna Inc.
MRNA,
+5.28%
rose 4%, despite that the company smashed Wall Street’s earnings and revenue expectations for the quarter. -
Lyft Inc.
LYFT,
-29.78%
stock tumbled 31% after the ride-hailing group reported a better-than-expected first quarter, but profit and sales guidance disappointed. Shares of rival Uber Technologies Inc.
UBER,
-3.90%
fell around 5.2%, after the company reported a $5.93 billion net loss in the first quarter derived from its investments in other three companies. -
Chinese ride-hailing company Didi Global Inc.
DIDI,
+0.50% ’s
American depository receipts fell 1.2%, after the company said it was under investigation by the Securities and Exchange Commission regarding its 2021 IPO. -
Herbalife Nutrition Ltd.
HLF,
-6.06%
slid almost 6.5% towards a two-year low after the multilevel marketing company announced forecast reductions due to newer “distributors.” -
Airbnb Inc.
ABNB,
+6.99%
shares climbed 5% after the lodging-booking company reported forecast-beating results and said it surpassed 100 million nights booked in a quarter for the first time. -
Match Group Inc.
MTCH,
+6.41%
stock fell 5.8% after the online-dating company’s revenue outlook fell short of expectations. -
Starbucks Inc.
SBUX,
+10.76%
stock rose 10.2% after the coffee giant reported in-line earnings, amid rising costs and inflation and thinner margins. Chief Executive Howard Schultz said “record” demand was helping accelerate store-growth plans. -
Advanced Micro Devices Inc.
AMD,
+8.46%
shares rose 6.5% after the semiconductor company reported more than $5 billion in quarterly revenue for the first time Tuesday.
How did other assets fare?
-
The ICE U.S. Dollar Index
DXY,
-0.71% ,
a measure of the currency against a basket of six major rivals, was down 0.9%. -
Gold futures
GC00,
+0.81%
slipped, with gold for June delivery
GCM22,
+0.81%
shedding 0.1% to settle at $1,868.80 an ounce. -
Bitcoin
BTCUSD,
+5.76%
was up 6.3% at $40,000. -
In European equities, the Stoxx Europe 600
SXXP,
-1.08%
closed down 1.1%. London’s FTSE 100
UKX,
-0.90%
dropped 0.9%. -
In Asia, the Hang Seng Index
HSI,
-1.10%
fell 1.1% in Hong Kong, while many other Asian markets remained closed for a holiday.
––Barbara Kollmeyer contributed reporting
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