4.02pm: Markets climb at closing
US stocks ended with sharp gains Wednesday after Federal Reserve officially announced a 25 basis point hike in the interest rates for the first time since 2018.
The Dow Jones Industrial Average sharply rose by 1.6%, or over 500 points, at 34,064, while the Nasdaq Composite boosted by 3.8% at 13,437, and the broader S&P 500 gained 2.24% at 4,358.
Stocks recovered in the final hour of trading after the initial sell-off following Fed’s decision on rate hike. Fed officials signaled at more interest rate hikes in 2022, coming at each of its remaining six policy meetings.
Bank shares surged following the announcement. JPMorgan jumped almost 5%, while shares of Bank of America (NYSE:BAC) were up by 3.1%.
2.30pm: Markets pare gains
US stocks pared early gains after Federal Reserve officially announced a 25 basis point hike in the interest rates, raising it to 0.5%
The markets turned lower following the announcement. The Dow Jones Industrial Average was flat at 33,541, while the Nasdaq Composite was up by 1%, and the S&P 500 added 0.4%.
“The Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent and anticipates that ongoing increases in the target range will be appropriate,” Fed Chair Jerome Powell said in its post-meeting statement. “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”
"Dollar up, yields up, stocks lower is the initial take on the Fed playing it safe with a 25bps hike in the Fed funds rate to 0.5%,” commented Neil Wilson, chief market analyst at Market.com. “Smallish moves for now, can take time to move properly.”
12.05pm: Stocks surge amid Russia-Ukraine talks
US stock continued with gains midday Wednesday as investors monitored Ukraine-Russia talks for a potential end to invasion, while the Fed is anticipated to announce an interest rate hike later in the day.
At noon, the Dow Jones Industrial Average was up by 1.2%, or almost 400 points, at 33,937, while the Nasdaq Composite added 2.8%, and the S&P 500 sharply jumped by 1.7%.
“Equity markets are continuing to bounce back strongly on Wednesday, as talks between Ukraine and Russia appear to be nearing a conclusion that could put an end to the invasion,” said Craig Erlam, senior market analyst, UK & EMEA, OANDA.
“There is still every chance the talks fall apart over the remaining issues and Russia continues its offensive and investors should be wary of that,” he cautioned.
As the Federal Reserve decision on rate hike is due this afternoon, Erlam noted, “It's been talking a good game in recent months but its first hike comes at a time when inflation is 7.9% and rising.”
If not for the invasion of Ukraine, the Fed would surely be contemplating a 0.5% hike more seriously but as it is, 25 basis points at the next few meetings is a minimum, he added.
Oil prices continued to decline Wednesday, trading well below $100 per barrel as Ukraine-Russia peace talks progressed.
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10.00am: Stocks bounce ahead of Fed decision
US stocks opened in the green on Wednesday as investors eye the Federal Reserve’s decision on interest rate hike and as Russia-Ukraine talks progress.
At the open, the Dow Jones Industrial Average was up 1.2% or almost 400 points, at 33,941, while the tech-savvy Nasdaq Composite surged 2.2%, and the broader S&P 500 added 1.6%.
Among the best-performing stocks Wednesday were Micron Technology, up 8.5%, while the coffee retail chain Starbucks jumped 7.2%.
“There will most likely be no commitments today but during the conference, president [of Federal Reserve Jerome] Powell will be asked about the starting point [in the balance sheet] and the pace of balance sheet reduction,” said Walid Koudmani chief market analyst at XTB.
This is the opposite to the QE (quantitative easing), or money printing, that was so supportive for stocks so the sooner the reversal starts, the worse news this is for stock markets, noted Koudmani.
“Tightening is negative but the market is oversold in the short run and the 13000-zone held up 3 times providing a basis for a possible short-term recovery – unless the Fed is very hawkish,” said Koudmani.
It is expected that Powell will suggest more monetary tightening despite the war-related uncertainty in Ukraine and Russia. The rate decision is at 2 pm EST.
On the geopolitical front, Ukraine President Volodymyr Zelensky’s comments suggesting progression in peace talks between the two war-torn countries also helped lift investors' sentiments.
6.30am: US stocks seen opening up
US stocks are expected to open higher as investors await the outcome of the two-day Federal Open Market Committee (FOMC) meeting, where the Federal Reserve is expected to raise interest rates for the first time in four years.
Sentiment has also been boosted by comments from Ukraine’s President Volodymyr Zelenskyy that peace talks with Russia have taken a realistic turn.
Futures for the Dow Jones Industrial Average rose 1.16% in Wednesday pre-market trading, while those for the broader S&P 500 index gained 1.35% and the tech-heavy Nasdaq added 1.92%.
US stocks closed with strong gains on Tuesday as oil prices declined amid the Russia-Ukraine war. The Dow rose sharply by 1.82% to 33,544, while the S&P 500 surged 2.14% to 4,262 and the Nasdaq rallied 2.92% to 12,949.
“A better day for risk appetite, supported in part by some optimism about the negotiations between Russia and Ukraine, as President Zelensky asserted that “the positions in the negotiations already sound more realistic” and one of his advisers said that there’s room for compromise," commented Daiwa Capital Markets analyst Chris Scicluna.
Scicluna noted that investors have also welcomed a statement from Chinese authorities that government departments should “actively introduce policies that benefit markets” and acknowledged the need to boost the economy.
“This evening’s FOMC announcements seem bound to bring the first Fed rate hike since 2018, with the target range highly likely to be increased by 25bps to 0.25-0.50%," Scicluna added. "Updated economic forecasts will offer some insights into the Fed’s judgement on the impact of the Ukraine conflict on the US economy; the dot plots will also offer guidance to the expected pace of tightening over the months ahead; markets currently pricing seven hikes this year.”