4:16pm: Fed Chair Powell says US not in a recession
The Dow closed Wednesday up 436 points, 1.4%, at 32,198, the Nasdaq Composite jumped 470 points, 4.1%, to 12,032 and the S&P 500 added 103 points, 2.6%, to finish at 4,024.
The benchmarks were positive but relatively unchanged for most of the day until the Federal Reserve announced its decision to raise interest rates another 75 basis points (bps) coupled with a suggestion from Chairman Jerome Powell that rate hikes could slow in the coming months. At that point, the indices all swerved sharply upward in the final hours of trading.
“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” Powell said at a press conference. He added that he did not believe the US is in a recession, noting that “there are too many areas of the economy that are performing too well.”
2:10pm: The Fed hike interest rates again
As expected, the US Federal Reserve has raised interest rates yet again, by another 0.75% in an effort to stem the tide of recession.
The move hikes short-term borrowing rates to between 2.25% and 2.50%.
In the immediate aftermath of the widely-anticipated decision, US stocks continued its positive run on the day. The Dow Jones was up 0.4% at 31,884 points, the S&P 500 was up 1.4% at 3,973 and the Nasdaq was up 2.5% at 11,855.
Chief market analyst Naeem Aslam said the Fed "did what they said will do" by increasing the interest rate by 75 basis points.
"This action was very largely priced into the market. As a result, we have seen weakness in the dollar index while the stock markets is holding on to its gains," Aslam wrote. "Going forward, the Fed needs to make sure that they continue to address all the noise about the future interest rate hike as it is highly likely that the next interest rate will not be 75 basis points. We expect a lot of noise in the market as different Fed members will send mixed signals."
Aslam also noted that traders also need to keep in mind the US non farm payroll (NFP) data released next week, as the Fed will fine tune their monetary policy based on the health of the US economy.
12:05pm: Stocks in the green
All three major US indices are in the green midday, pushing higher ahead of the US Federal Reserve decision on interest rates at 2 pm ET today.
At noon, the Dow Jones was up 0.5% at 31,900 points, the S&P 500 was up 1.5% at 3,978 and the Nasdaq was up 2.6% at 11,866.
At midday, the major movers included the S&P seeing Enphasre Energy up almost 19%, but Sherwin Williams falling by 9%. Nasdaq saw PayPal Holdings up by almost 11% but Kraft Heinz down by 7%. Over at the Dow, Microsoft Corp was up 5% but 3M Co was down 1.7%.
Equiti market analyst David Madden wrote in a note: “According to interest rate futures, an increase of 75-basis points is tipped to be the most likely outcome, but at the same time, an increase of 100-basis points cannot be ruled out."
“In the past two weeks, we have seen a couple of surprises from central banks as the Bank of Canada and the European Central Bank lifted rates by larger amounts than anticipated. Seeing as the BoC upped the ante, the Fed might use that as cover to press ahead with a 1% lift,” Madden added.
Madden also noted US equity traders have “shrugged off the disappointing forecast from Walmart yesterday."
“Google’s parent, Alphabet, revealed that advertising revenue jumped by 12% in the second quarter, this was encouraging as it suggests that companies are optimistic despite the growing uncertainty. Microsoft shares are up over 4% as its cloud division registered a 40% rise in revenue. The well-received updates from the big names, combined with a fall in the US 10-year yield to 2.76%, is helping the NASDAQ 100 and the index is up 2.5%.”
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9.35am: Tech earnings bring relief
US stocks opened higher spurred by better-than-expected tech earnings released after the bell yesterday as investors awaited the release of the Fed’s interest rate verdict at 2pm Eastern.
Just after the open, the Dow Jones Industrial Average had added 158 points at 31,919 points, while the S&P 500 was up 33 points at 3,954 points and the Nasdaq Composite was up 182 points at 11,745 points.
OANDA senior market analyst Craig Erlam noted that there was plenty more to come from big tech, but first investors would hear from the Fed which was expected to hike interest rates by another 75 basis points.
“[The Fed] finds itself in an uncomfortable spot, with markets now pricing in a relatively swift u-turn in 2023 from aggressive tightening to loosening in order to support the economy,” he said.
“The Fed must walk a fine line as any validation of that will undermine its efforts to tighten and get a grip on inflation. Attention will be on its guidance over the coming months and how hawkish it will continue to be.”
Meanwhile, US durable goods orders rose unexpectedly in June, jumping 1.9%, coming in far higher than the market expectation of a decrease of 0.4%.
Pantheon Macroeconomics chief economist Ian Shepherdson noted that the upside surprise in the headline number came from the aircraft component, with defence aircraft jumping 81% out of the blue.
“These numbers are noisy, but that was exceptional, and it will likely mean-revert in July,” he said.
“Core capital goods orders rose 0.5%, in line with the recent trend, but probably about flat in real terms. The rate of growth has slowed markedly over the past year, and the summer likely will see a further softening, given the decline in capex spending plans in the regional Fed surveys.”
6.30am: All eyes on FOMC outcome
US stocks were expected to rally at the open on Wednesday on relief that some key quarterly after-hours tech earnings, notably from Google owner Alphabet Inc (NASDAQ:GOOG) and software giant Microsoft Inc, proved not as bad as feared.
Futures for the Dow Jones Industrial Average were trading 0.5% higher pre-market on Wednesday, while those for the broader S&P 500 index were up 1.0%, and futures for the tech-laden Nasdaq-100 added 1.7%.
However, everything today will hinge on the afternoon interest rate decision from the US Federal Reserve and its accompanying statement, due at 2.15pm ET. The Fed is widely expected to raise interest rates by 75 basis points, but the key question is whether such a hike will have the desired effect of tackling inflation which is currently at multi-decade highs.
Jeffrey Halley, senior market analyst, Asia Pacific, OANDA noted: "After what seems like an interminable wait, we are finally at FOMC day ... Markets have baked another 75 basis points into their loaves of bread, but it's going to be all about what the Fed and Jerome Powell say and not what they do.
"The IMF downgraded world growth forecasts last night, and there are plenty of recessionary signs around the world. What we’re not yet seeing, is easing commodity prices and supply chain pressures flowing through to lower prices."
He continued: "Markets will be betting heavily that the Federal Reserve may mollify some of its inflationary language. These were the same markets that just recently were pricing in 100 basis points today in a panicked manner, so don’t take their 'wisdom' as gospel. Although the Fed may well be pleased that some of their harsh medicine is taking effect by virtue of voice and intent rather than action, it wouldn’t make much sense for them to take their foot off the brakes right now and pivot to being dovishly hawkish."
"The Fed already has a credibility issue thanks to being so vehemently in Team Transitory, and although my expectations for them are nearly as low as the Reserve Bank of New Zealand, monetary custodial of my beloved but now thoroughly messed up country, I expect them to 'stay on message'," Halley concluded.
On the earnings front, the latest numbers from Alphabet and Microsoft both came in below expectations but had some bright spots and both shares rose.
Microsoft blamed a strong US dollar and a slowing PC market, although it was noted that Q4 revenues were still a record $51.87bn, and 12% up over the same period a year ago. As for Alphabet, advertising revenues were also good, but again below expectations. YouTube revenue came in at $7.34bn, below $7.52bn, while advertising revenues rose 12% to $56.3bn.
On Wednesday, after-hours, the earnings spotlight will be on Facebook ower Meta Inc and music streaming firm Spotify Inc, while both Apple Inc and Amazon.com Inc (NASDAQ:AMZN) will round out the tech deluge on Thursday.
For some light relief, US economic data due on Wednesday includes the latest durable goods orders, pending homes sales. and MBA mortgage applications.
Contact the author at jon.hopkins@proactiveinvestors.com