Fed policy leaders held benchmark rates unchanged as expected, but Powell encouraged investors by saying further increases are unlikely.
U.S. stocks ended mixed Wednesday after the Federal Reserve’s policy meeting ended with no change to benchmark interest rates, as expected. Investors who’ve grown increasingly inflation-skittish took some comfort after Fed Chair Jerome Powell said it’s “unlikely” the central bank will hike rates, which sparked a late rally that turned out to be short-lived.
The Federal Open Market Committee (FOMC) held its funds target rate at 5.25% to 5.5%, where it’s been since last July, citing “a lack of further progress” in bringing inflation down to the central bank’s 2% long-term target. The FOMC “does not expect it will be appropriate to reduce the target range until it has gained greater confidence” that inflation is moving sustainably toward 2%, according to its statement.
While the FOMC statement held few surprises, investors appeared to seize on Powell’s post-meeting press conference comment that “it’s unlikely the next policy rate move will be a hike.” Investors were also encouraged by the Fed saying it’ll ease up on its so-called quantitative tightening, referring to the process of letting maturing bond proceeds drop off the central bank balance sheet without reinvesting.
According to Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research, the stock market appeared to take its cue from Treasury yields, which fell sharply after the FOMC meeting amid growing confidence interest rates may be near or at a peak, despite some recent stubborn inflationary data.
“The drop in yields looks like a signal for the bond market’s interpretation of the Fed’s message,” Peterson said. “Powell reiterated that the current funds rate is restrictive, and barring any surprises in the data, another rate hike is essentially not on the Fed’s radar, so stock investors are interpreting that as a ‘net win.’”
Here’s where the major benchmarks ended:
Banks and other financial shares led the market’s afternoon upswing, reflecting renewed optimism over the outlook for interest rates. The KBW Regional Bank Index (KRX) jumped 2.4% and posted its first gain in five days. Biotechnology and communication services were also strong.
Energy shares were among the weakest performers as WTI Crude Oil (/CL) futures extended a week-long nosedive and dropped under $80 per barrel for the first time since mid-March. Crude futures sank over 3% after the Energy Information Administration reported U.S. oil inventories surged 1.6% last week.
Among top companies, Amazon (AMZN) gained 2.2% after reporting stronger-than-expected earnings and revenue late Tuesday. Starbucks (SBUX) tumbled 16% following unexpectedly soft quarterly results. Apple (AAPL) eased 0.6% ahead of its quarterly results, expected after Thursday’s close.
The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:
Wednesday’s FOMC results came on the heels of a tumultuous month for U.S. stocks, as the S&P 500 index followed a record-breaking March with a 4.2% drop in April. Stocks slumped broadly as a string of hotter-than-expected inflation readings early this year forced investors to rein in hopes for Fed rate cuts.
While the market appeared to cheer Powell’s comments, it retained a strong conviction that no cuts from the Fed are in the offing. Late Wednesday, traders pegged 90% odds the fed funds target will be held unchanged following the FOMC’s June 11 – 12 meeting and 72% odds for no change following the committee’s July meeting.
Friday’s Labor Department Nonfarm Payrolls looms as the next key market influencer. Analysts expect payrolls expanded about 250,000 during April, based on a Briefing.com consensus. That would be down from an unexpectedly high 303,000 in March but still considered strong. The unemployment rate is expected unchanged 3.8%.
Economic numbers so far this week are carrying mixed messages on the job market, as well as for manufacturing. Earlier Wednesday, according to the ADP® Employment Report, private payrolls gained 192,000 during March, down from an upwardly revised 208,000 in February but above expectations for an increase of about 175,000, based on a Briefing.com consensus.
“Hiring was broad-based in April,” with only telecommunications, media, and information technology showing weakness, ADP’s Chief Economist Nela Richardson said in a statement.
The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) offered a less-rosy counterpoint. Job openings in March fell to 8.488 million, down from 8.813 million the previous month and the lowest since February 2021, according to the department. Job openings fell short of expectations for 8.72 million. Also, the “quits” rate fell to 2.1%, the lowest since August 2020.
Also Wednesday, the Institute of Supply Management’s Manufacturing PMI® fell to 49.2 in April, dropping back into contraction after posting a 50.3 in March. A number above 50 is considered expansion. The PMI has been in contraction territory for 17 of the past 18 months.
“All of this is illustrative of a loosening labor market,” Schwab’s Chief Global Investment Strategist Jeffrey Kleintop said, adding the numbers had a “stagflationary” mix, with growth slowing but price pressures remaining elevated.
Do Not Sell or Share My Personal Information
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions.
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.
Charles Schwab & Co., Inc. (“Schwab”) and TD Ameritrade, Inc., members SIPC are separate but affiliated subsidiaries of The Charles Schwab Corporation.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. © 2024 Charles Schwab & Co. Inc. All rights reserved.