The market is still betting that the Fed will slow the pace of its rate hikes.
The Dow Jones (DJIA) gained 435 points or 1.4% on Friday. The S&P 500 index rose 2.6%, while the Nasdaq rose 4.1%. Compared to where they were trading before the Fed’s statement, stocks ended Friday higher.
The Federal Reserve raised its key lending rate by 0.75 percentage points, as was widely predicted. Moreover, the Federal Reserve has declared that it plans to “continue” to increase interest rates.
The Federal Reserve is still trying to rein in high inflation by gradually increasing interest rates. However, Fed chair Jerome Powell has hinted that a temporary pause in rate increases may be in order.
If so, that could help explain the stock market’s recent volatility’s continued upward trend on Wednesday after the news broke. By Wednesday, the market had already begun to reflect the significant impact that rate rises had had on economic demand; the S&P 500 was down 17% from its all-time high in early January. As the economy has taken a hit as of late, the story on the stock market has been that the Fed will soon stop raising interest rates.
For example, the Fed noted that “recent indicators of spending and production have softened.”
Bond prices, for one, have already reflected a good chunk of the impending rate increases. Accordingly, to foretell where the fed funds rate will be in the coming years, investors have been keeping a close eye on the 2-year Treasury yield, which recently settled at 2.97 percent, down from its day-high of 3.01 percent. There was a multi-year high of 3.4% in mid-June, but it has since dropped below that mark.
Principal Global Investors chief global strategist Seema Shah recently opined that the Federal Reserve might reduce the rate at which it is tightening policy from here on out.
Gains in earnings that are better than expected are also helping the stock market.
Although revenue was in line with projections, Alphabet (NASDAQ: GOOGL) fell short on earnings per share. Investors’ fears about brands cutting back on advertising spending were allayed by the quarter’s advertising sales growth for Snap (SNAP), which had previously reported flat ad sales. Stock in Alphabet was up 7.7 percent after falling more than 20 percent this year before the report.
Microsoft’s revenue and earnings per share fell short of projections. A stronger dollar and poor PC results caused the top line to fall short of expectations. However, executives said Azure cloud computing sales grew by 40%. Despite being down for the year, the stock rose 6.7% on Wednesday despite being down.
Finally, when the layers of the results are peeled away, the most critical core business was relatively rocked solid, as noted by Dan Ives, an analyst at Wedbush Securities.
Stocks in similar software companies were also benefiting from the positive numbers. For example, a 5.6 percent increase was seen in Salesforce (CRM), 4.6 percent in CrowdStrike (CRWD), and 6.4 percent in Cloudflare (NET).
Sales at Chipotle Mexican Grill (CMG) were lower than anticipated, but earnings per share were higher. Even though the company’s operating margin grew, it blamed price increases for scaring away low-income customers. The price increase was 14%.
The market needs assurances now that prices will not rise uncontrollably. That’s what’s necessary for the Fed to be less aggressive, which would keep the stock market growth. As a result, economists anticipate a drop from June’s 9.1 percent annual increase in the consumer price index to 8.8 percent when it is released on August 10.
Here are a few moving stocks for Wednesday:
After reporting a profit of $2.45 per share, which was higher than the consensus estimate of $2.13, and sales of $5.21 billion, which were higher than the consensus estimate of $4.65 billion, shares of Texas Instruments (TXN) rose by 6.7%.
Following the release of 67 cents per share, which was higher than the consensus estimate of 64 cents, and sales of $7.27 billion, which was higher than the consensus estimate of $6.79 billion, shares of Mondelez International (MDLZ) rose by 1.1 percent.
Despite reporting a loss of 37 cents per stock and sales of $16.68 billion, both lower than expected, Boeing’s (BA) stock was up by 0.1 percent.
After reporting a profit of $1.93 per stock on sales of $11.9 billion, which was higher than estimates of $11.4 billion, shares of Bristol Myers Squibb (BMY) rose by 1.5 percent.
McDonald’s (MCD) stock increased by 0.7% despite Deutsche Bank lowering its recommendation for the company’s stock from Buy to Hold.
