US stocks rally even as Fed hikes interest rates, signals further hikes
Stocks rose sharply at the end of Wednesday’s trading session as traders reacted positively to the Federal Reserve’s monetary policy announcement. With the upward move, the Nasdaq and S&P 500 hit their best closing levels in four months.
The major averages all ended the day in positive territory, although the Dow Jones rose just 6.92 points or less than a tenth of a percent to 34,092.96. The Nasdaq jumped 231.77 points or 2.0% to 11,816.32, while the S&P 500 jumped 42.61 points or 1.1% to 4,119.21.
The late-day rally on Wall Street came even as the Federal Reserve announced its widely expected decision to raise interest rates another quarter point and signaled further rate hikes.
After a two-day meeting, the Fed said it had decided to raise the target range for the federal funds rate by 25 basis points to 4.50-4.75%.
The latest interest rate hike comes after the central bank raised rates by 75 basis points in November and 50 basis points in December.
The Fed also said it expects continued interest rate increases to be appropriate to achieve a monetary policy stance tight enough to bring inflation down to 2% over time.
In his post-meeting press conference, Fed Chairman Jerome Powell said the central bank didn’t think rates were at a tight enough policy stance yet and suggested “a few more rate hikes.” would be needed to reach this level.
The next monetary policy meeting is scheduled for March 21-22, with CME Group’s FedWatch tool currently indicating an 81.8% chance that the Fed will hike rates another 25 basis points.
Ahead of the Fed’s announcement, payroll processor ADP released a report showing private sector job growth slowed more than expected in January.
ADP said private sector employment increased by 106,000 jobs in January after jumping an upwardly revised 253,000 jobs in December.
Economists expected private sector employment to rise by 178,000 jobs from the 235,000 job addition initially reported the previous month.
A separate report from the Institute for Supply Management showed that activity in the US manufacturing sector contracted for the third consecutive month in January.
The ISM said its manufacturing PMI fell to 47.4 in January from 48.4 in December, a reading below 50 indicating contraction. Economists expected the index to fall to 48.0.
Industry News
Semiconductor stocks posted some of the best performance in the market on the day, with the Philadelphia Semiconductor Index climbing 5.2% to a five-month closing high.
Chipmaker Advanced Micro Devices (AMD) helped lift the sector, soaring 12.6% after reporting better-than-expected fourth-quarter results.
Substantial strength was also visible among transportation stocks, as evidenced by the 3.8% rise in the Dow Jones Transportation Average.
Software, hardware and gold inventories also saw considerable strength, while gold inventories fell sharply along with the price of crude oil.
Other markets
In foreign trade, stocks markets in the Asia-Pacific region rose mainly during Wednesday’s trading. Japan’s Nikkei 225 index rose 0.1%, while Hong Kong’s Hang Seng index jumped 1.1%.
Meanwhile, major European markets delivered a mixed performance on the day. While Germany’s DAX index rose 0.4%, France’s CAC 40 index and Britain’s FTSE 100 index both fell 0.1%.
On the bond market, Treasury bills rose sharply following the announcement of the Fed’s monetary policy. As a result, the yield on the benchmark ten-year note, which moves opposite to its price, fell 13.2 basis points to 3.397%.
Look forward
Thursday’s trading could continue to be impacted by the reaction to the Fed’s decision, while traders should also keep an eye on the latest economic news and earnings.
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US stocks rally even as Fed hikes interest rates, signals further hikes
