Fed fuels Wall Street rally; Nasdaq jumps 4%, leading S&P 500, Dow Jones higher

MBPROJEKT_Maciej_Bledowski

The announcement of the latest Federal Reserve decision gave a major boost to stocks on Wednesday. With investors taking heart from additional clarity on the Fed’s anti-inflation policy, the major U.S. equity averages finished sharply higher, led by a 4% gain in the Nasdaq.

Shares started the day higher, as the market reacted positively to earnings from the likes of Microsoft and Alphabet. This positive sentiment carried over into the Fed meeting, with dovish commentary from the central bank head fueling further gains in the afternoon.

The Nasdaq (COMP.IND) ended +4.1%, the S&P 500 (SP500) closed +2.6% and the Dow (DJI) finished +1.4%.

The Dow Jones rose 436.05 points to close at 32,197.59, while the S&P 500 recorded a gain of 102.56 points and ended the session at 4,023.61. This was the first close above 4,000 since June 9. The Nasdaq surged 469.85 points to finish at 12,032.42.

All 11 S&P sectors posted gains on the session. The rally was led by Communication Services, which soared 5.1%. Info Tech jumped 4.3%, while Consumer Discretionary saw a nearly 3.9% advance.

Looking to the bond market, the 2-year Treasury yield dropped 7 basis points to reach 2.98%. The 10-year Treasury yield retreated about 1 basis points to hit 2.78%.

In its policy announcement, the U.S. central bank raised rates by another 75 basis points. This was followed by comments from Fed Chair Jerome Powell, who suggested that rate hikes would become less aggressive as the inflation fight drags on.

In his press conference, Powell said it was likely appropriate to slow rate increases at some point as policy becomes more restrictive and that rates are “right in the range” of what the Fed thinks of as “neutral.”

The market interpreted those comments as taking a dovish tilt. Powell also said that the Fed won’t be providing as much guidance and go into meeting-by-meeting mode.

“#Fed Chair #Powell tends at times during his unscripted remarks to opt for undue specificity that can prove problematic later on,” Mohamed El-Erian tweeted. “A poss example of this is his mention just now that interest rates are ‘at a neutral level’ (followed by reference to ‘significantly more uncertainty) Needless to say, #markets love that statement.”

In its release, the Fed said ongoing rate hikes would be appropriate. At the same time, it downgraded its view on the economy, noting softness in production and spending. Even so, the central bank also noted strength in the labor market.

“The most boring statement announcing a 75 basis point hike you’ve ever seen,” Indeed economist Nick Bunker tweeted.

The market expects another hike in September but is split on the size, with a 55% chance of 50 basis points, a 40% chance of 75 and a small chance of 100.

Looking at some of the day’s other economic news, June Durable Goods Orders came in unexpectedly higher at +1.9% to $272.6B compared to the -0.5% expected and +0.8% prior figure.

“At first glance, the durable goods data suggest manufacturing continues to defy expectations for a slowdown in activity,” Wells Fargo said. “But stripping away defense orders and adjusting for inflation suggests activity is cooling.

The firm added: “An ugly end to the quarter for core capital goods shipments positions a weaker Q2 for equipment spending than we anticipated, but advanced data on inventories should offset some of that weakness in tomorrow’s Q2 GDP report.”

Elsewhere, wholesale inventories rose more than expected in June, up 1.9%, which has led to J.P. Morgan boosting its Q2 GDP forecast and trimming the chances of a technical recession.

In another piece of economic information released earlier in the day, June pending home sales tumbled much more than expected, down 8.6%.

“Pending home sales crumbled 8.6% in June,” Renaissance Macro Research tweeted. “Excluding the pandemic, this was the lowest level since 2011. A sale is listed as pending when a contract is signed on an existing home. This series leads existing home sales by 1-2 months. Brokers’ commissions will drop sharply in Q3.”

Among active issues, Enphase Energy was among the best performers in the S&P on strong guidance. Sherwin-Williams represented a notable decliner after it slashed its full-year forecast.

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