The S&P 500 closed more than 2%, while the Nasdaq was up nearly 4% on Wednesday as investors shook off initial nervousness after the Federal Reserve’s rate hike and its signal that more hikes were needed to fight inflation and to end the pandemic era of easy monetary policy.
The central bank announced a quarter-point hike in its overnight interest rate, as was widely expected, but the forecast that rates would range between 1.75% and 2% by year-end was tighter than some investors had expected.
While noting the massive economic uncertainty from the Russia-Ukraine war and the ongoing COVID-19 crisis, the Fed said “sustained increases” in interest rates “will be appropriate” to curb the country’s peak inflation seen in 40 years.
While major indices gave back sharp earlier gains and both the S&P and Dow fell shortly after the Fed’s statement, the indices were stabilizing as Fed Chair Jerome Powell spoke at a news conference.
Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis, said investors may be relieved that the Fed is taking action to curb rising inflation.
“Hearing that the Fed is finally ‘saying and acting’ to fight inflation is somewhat reassuring for the investment community and for Main Street grappling with higher inflation,” he said.
However, other market analysts feared that the aggressive rate hike forecast could send the economy into a spin.
“This looks like a Fed that intends to cause a recession to root out the inflation problem and is as short-sighted as if it called inflation temporary a year ago,” said Scott Ladner, chief investment officer, Horizon Investments , Charlotte, North Carolina. Joseph La Vorgna, America’s chief economist at Natix, also expressed skepticism in New York.
“They will try to be aggressive here in raising interest rates. I wish Jay Powell and company the best of luck because they won’t get anywhere near as far as they think they will unless they’re willing to put a lot of people out of work, because that’s what’s going to happen. Because we’re going to have a recession. This is a recession forecast,” he said.
“I just don’t see the Fed being able to engineer that kind of tightening for what is inflationary demand destruction right now.”
The Dow Jones Industrial Average was up 518.76 points, or 1.55%, to 34,063.1, the S&P 500 was up 95.41 points, or 2.24%, to 4,357.86 and the Nasdaq Composite was up 487.93 points, or 3.77% to 13,436.55.
Of the S&P 500’s 11 major industrial sectors, the biggest gainers were sectors that fell sharply in a recent sell-off, with consumer discretionary and technology both up more than 3%, while communications services and financials were up nearly 3%.
Only two of the sectors ended the day down, energy fell 0.4% and utilities lost 0.2%.
Historical data suggests that tighter monetary policy has often been accompanied by solid gains in equities.
According to a Deutsche Bank study of 13 interest rate hike cycles since 1955, the S&P 500 has fallen an average of 7.7% in the first year the Fed has hiked rates.
Ahead of the Fed’s statement, stocks had rallied as talks on Wednesday of a compromise between Moscow and Kyiv on Ukraine’s non-NATO status raised hopes of a possible breakthrough after three weeks of war.
Global sentiment had also been boosted earlier by China’s promise to provide more stimulus to the economy and keep markets stable.
Rising issues predominated on the NYSE at a 3.78 to 1 ratio; on the Nasdaq, a 3.79 to 1 ratio favored movers.
The S&P 500 posted 15 new 52-week highs and 1 new low; the Nasdaq Composite posted 29 new highs and 93 new lows.
15.82 billion shares changed hands on US stock exchanges compared to the 20-day moving average of 14.04 billion.
Wall Street closes higher after Fed hikes, signaling more to come – SABC News
Source link Wall Street closes higher after Fed hikes, signaling more to come – SABC News