US stocks popped on Wednesday as the Federal Reserve voted to hold interest rates at their highest range in 22 years at the conclusion of its latest policy meeting and investors bet that the central bank may be done hiking.
The S&P 500 (^GSPC) was up more than 1% while the Dow Jones Industrial Average (^DJI) gained almost 0.7%. Meanwhile, the tech-heavy Nasdaq (^IXIC) led gains, soaring 1.6%.
The Fed held rates steady in a range of 5.25%-5.50% as the central bank waits to see how its aggressive credit tightening campaign filters through the US economy.
When asked about a previous projection by the central bank for one more rate hike this year, Powell noted that the Summary of Economic Projections is “not a promise or plan of the future.”
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
Treasury yields edged lower, with the 10-year yield (^TNX) trading below 4.8%. Yields ticked lower earlier Wednesday after the US Treasury’s quarterly refunding update revealed the Treasury will auction $112 billion in debt next week, roughly in line with Wall Street’s expectations.
Stock investors were watching the announcement more closely than usual, given how the August update contributed to the recent run-up in yields.
Bets on future rate hikes shifted on the news. According to the CME FedWatch Tool, investors have priced in a 73% chance that the Fed holds rates steady through its January meeting. A day prior, markets had priced in just a 59% chance that rates would be held steady through that meeting.
JStocks soar into close after Powell doesn’t commit to another rate hike in 2023
US stocks popped on Wednesday as the Federal Reserve voted to hold interest rates at their highest range in 22 years at the conclusion of its latest policy meeting and investors bet the central bank may be done hiking.
The S&P 500 (^GSPC) was up more than 1% while the Dow Jones Industrial Average (^DJI) gained almost 0.7%. Meanwhile, the tech-heavy Nasdaq (^IXIC) led gains soaring 1.6%
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The Fed held rates steady in a range of 5.25%-5.50% as the central bank waits to see how its aggressive credit tightening campaign filters through the US economy.When asked about a previous projection by the Central Bank for one more rate hike this year, Powell noted that the Summary of Economic Projections is “not a promise or plan of the future.”
Bets on future rate hikes shifted on the news. Investors have priced in a 73% chance the Fed holds rates steady through its January meeting, according to the CME FedWatch Tool. A day prior, markets had priced in just a 59% rates would be held steady through that meeting.
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The ‘dot plot’ isn’t a set in stone plan, Powell says
In September, the Federal Reserve released its latest Summary of Economic Projections, including its “dot plot,” which maps out policymakers’ expectations for where interest rates could be headed in the future.
Markets fell and yields soared after the dot plot projected one more rate hike from the central bank this year.
But when asked specifically about that forecast on Wednesday and if it means a hike will come in December, Fed Chair Jerome Powell was non-committal.
Powell said to “think of the number of things that could change your mind” since when the Fed wrote down its projections in more than a month ago. He added the dot plot is “not a promise or plan of the future.”
“The efficacy of the dot plot decays over three months,” Powell said.
Stocks rose as Powell spoke on Wednesday. The S&P 500 (^GSPC) and Nasdaq (^IXIC) both popped above 1% while the 10-year Yield (^TNX) fell below 4.8%.
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Fed still doesn’t see recession in the near term
As yields have soared and economists have warned of the lagging impacts from the Fed’s aggressive interest rate hiking campaign, many are still projecting the US economy will slip into recession in 2024.
The Federal Reserve is not in that camp.
“The answer is no,” Fed Chair Jerome Powell said when asked if the central bank staff added a recession back into their forecast. “The staff did not put a recession back in.”
Powell pointed to recent strong economic data, which includes the fastest rate of GDP growth in nearly two years, and noted that the current economic activity is “not indicative of a recession in the near term.”
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Fed now sees ‘strong’ US economy
The Federal Reserve held rates unchanged on Wednesday but provided new updates to its assessment of the economy.
Yahoo Finance’s Jennifer Schonberger reports:
In its statement on Wednesday, the Fed upgraded its assessment of the economy to “strong” in the third quarter from “solid” in September.
The central bank noted job gains have “moderated,” after having noted in September that job growth had “slowed” during the previous inter-meeting period.
“Recent indicators suggest that economic activity expanded at a strong pace in the third quarter,” the Fed said. “Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation remains elevated.”
This updated characterization of the economy comes after third quarter GDP data published last week showed growth clocked in at a whopping 4.9% annualized rate over the summer months, driven in large part by strong consumer spending, punctuated by a surge in retail sales in September.
The Fed reiterated that future rate hikes would be contingent on the impact of previous rate hikes on the economy, lag effects and economic developments.
The decision to hold rates steady was unanimous.
“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook,” the statement read. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
AFed holds rates steady
The Federal Reserve held rates steady in a range of 5.25%-5.50% at the conclusion of its two-day policy meeting on Wednesday. The central bank has maintained this range since July after it hiked rates to their highest level in 22 years.
Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET.
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Stocks in the green before Fed announcement
About 15 minutes before the Federal Reserve announces its latest policy move, stocks are trading higher.
The S&P 500 (^GSPC) was up 0.4% while the Dow Jones Industrial Average (^DJI) gained 0.2%. Meanwhile, the tech-heavy Nasdaq (^IXIC) rose nearly 0.7%. Yields trended lower with the 10-year Treasury yield falling to 4.81%.
As Bespoke Investment Group recently pointed out in a research note, most of the day’s market action on Fed days normally comes after Fed Chair Jerome Powell begins his press conference at 2:30 p.m.
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Trending tickers on Wednesday afternoon
AMD (AMD) stock led Yahoo Finance’s trending tickers page after reporting quarterly results that topped Wall Street’s expectations for both revenue and earnings per share. The stock rose more than 8% as the company projected annual sales of more than $2 billion.
Paycom (PAYC) shares tanked more than 30% on Wednesday after the company guided for lower sales than the Street had hoped for. Paycom now sees revenue in the fourth quarter in a range of $420 million-$425 million, below expectations for $452 million.
Estée Lauder (EL) stock was under pressure after it the company issued earnings and sales guidance well below Street estimates. The company sees earnings per share in a range of $0.48 to $0.58 in the next quarter, below the Street consensus of $1.21. Shares fell more than 16%, approaching a six-year low.
WeWork (WE) stock tumbled roughly 50% on reports that the shared office space provider is preparing a bankruptcy filing.
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Could 5% yields be the line that ends the surge?
The US Treasury’s quarterly refunding announcement came in largely in line with Wall Street’s expectations on Wednesday. Next week, the Treasury will auction $112 billion in debt, just shy of market expectations for $114 billion.
The announcement was a welcome sign for investors who had been worried higher-than-expected bond issuance wouldn’t be met with enough demand and therefore Treasury yields would continue their march higher. But Wednesday’s announcement sent yields lower with the 10-year yield (^TNX) trading around 4.8%
RSM US principal and chief economist Joseph Brusuelas wrote on X , formerly known as Twitter, that the market can and will digest this new supply of bonds “without causing a surge in long-term rates.”
Charles Schwab chief fixed income strategist Kathy Jones agreed, also writing on X, “Signs point to the likelihood that 5% ish is a level where there’s enough demand.”
For equity investors, a turn in the bond market could be crucial as rising yields have weighed on stocks since the last Fed meeting in late September.
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Private payroll wage growth hits a 2-year low
The US labor market continues to show signs of a tight jobs market with increasing signs that pandemic-era wage boosts are evaporating.
ADP private payroll data released Wednesday showed pay growth slowed to its lowest level in two years during October. Meanwhile, job switchers are being rewarded increasingly less too.
Pay growth for job changers in October decreased to 8.4%, the smallest yearly increase since July 2021. This came as, broadly, the ADP employment report showed 113,000 private payroll jobs were added in October, lower than Wall Street’s estimates for 150,000.
“No single industry dominated hiring this month, and big post-pandemic pay increases seem to be behind us,” ADP chief economist Nela Richardson said in the release. “In all, October’s numbers paint a well-rounded jobs picture. And while the labor market has slowed, it’s still enough to support strong consumer spending.”
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The ‘Magnificent Seven’ stock market leaders went their separate ways in October
The “Magnificent Seven” tech giants that have led the 2023 stock market rally saw their fortunes diverge in October as earnings, industry narratives, and investor fatigue worked through this group of leaders.
“At this point you can’t look at them as seven stocks together,” Interactive Brokers chief strategist Steve Sosnick told Yahoo Finance Live on Tuesday.
Last month, Amazon (AMZN) and Microsoft (MSFT) were the only members of the group to post gains greater than 1% with the Seattle-area giants rising 4.7% and 7.1%, respectively. Both companies reported quarterly results that revealed growth in their cloud units above investor forecasts.
Meanwhile, rival Alphabet (GOOG, GOOGL) saw shares drop more than 5% after downbeat results from its cloud business, while Nvidia (NVDA) lost 6% amid reports the Biden administration could limit AI chip exports to China.
Tesla (TSLA) stock fell nearly 20% after its latest results showed weaker-than-expected profits amid an overall concern about the adoption rate of EVs.
Meta Platforms (META) issued softer-than-expected guidance for the fourth quarter, though the stock finished the month basically flat, rising 0.4%. Apple (AAPL) stock logged a similarly lackluster month, falling 0.3% after a more than 8% drop in September; the iPhone maker will report results on Thursday.
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