Nasdaq leads stocks higher after Fed delivers expected interest rate rise

Stocks doubled their earlier gains Wednesday afternoon with the Nasdaq Composite advancing 3.7% after the Federal Reserve raised its benchmark interest rate by another 0.75 percentage point to combat hotter-than-expected inflation.

Stocks added to gains after Fed chair Powell noted in his press conference that another unusually large boost in rates in September would depend on data, while adding that it will be likely appropriate to slow increases at some point. 

What’s happening
  • The Dow Jones Industrial Average
     rose 386 points, or 1.2% to 32,148.

  • The S&P 500
     gained 91 points, or 2.3%, to 4,011.

  • The Nasdaq Composite 
     advanced 434 points, or 3.7% to 11,996.

On Tuesday, the Dow Jones Industrial Average fell 229 points, or 0.71%, to 31762, the S&P 500 declined 46 points, or 1.15%, to 3921, and the Nasdaq Composite dropped 220 points, or 1.87%, to 11563.

What’s driving markets

U.S. stocks rallied on Wednesday afternoon as the central bank announced another 75 basis point interest rate hike to tame four-decade high inflation.

In a statement, Fed officials said they decided to raise the target range for the federal funds rate to 2.25% – 2.5% and anticipated that “ongoing increases in the target range will be appropriate.”

See: Fed hikes rates by 0.75 percentage points and signals more hikes coming

The decision was announced at 2 p.m. in Washington and Chairman Jerome Powell is holding a press conference at 2:30 p.m. Eastern time.

Powell’s comments will “be heavily influential on the movement of the market,” said Kevin Philip, partner at Bel Air Investment Advisors.

“If he acknowledges the layoffs, and he acknowledges the low consumer sentiment, the market will probably rally on this comments. If he focuses more of the underlying strength of the economy, the market will probably anticipate that as room for them to tighten more and market might sell off on those comments,” Philip said in a morning interview.

Tim Duy, chief U.S. economist at SGH Macro Advisors, says the central bank will want to send a hawkish message but might find it hard to accomplish.

“The easy path to sending that message is to set up another 75bp hike in September, but I don’t think the Fed will do that if, as I suspect, the goal is to reduce the level of guidance while creating a hawkish path that does not require an additional super-sized hike,” said Duy. “It might be a tricky space to navigate; we have always said the Fed will face a communications challenge when it comes time to set the stage for stepping down from 75 bp.”

In U.S. economic data Wednesday, durable-goods orders jumped 1.9% in June. That was largely due to more bookings for new cars and trucks, but there were hints of weakness among other manufacturers. Economists polled by the Wall Street Journal had forecast a 0.4% decline in new orders for products meant to last at least three years.

Meanwhile investors are digesting second quarter earnings reports. More than 150 S&P 500 companies have reported calendar second-quarter earnings thus far. Of those names, roughly 70% have beaten analyst expectations, FactSet data shows.

The rally Wednesday was led by tech stocks with the Nasdaq 100 outperforming after reassuring results from Alphabet, Microsoft and Texas Instruments

and Microsoft
each missed earnings expectations in their reports Tuesday night, though shares of both were up as they both posted quarterly revenue growth. Among the wave of companies reporting results on Wednesday are plane maker Boeing
and, after the market close, Facebook parent company Meta Platforms

“There’s just a little bit more positive spin on what you’re seeing,” Edward Moya, senior analyst at OANDA said in a phone interview.

“Over the last 24 hours, we’ve had strong results from Microsoft, Alphabet. This morning alone, Boeing wasn’t that bad. We also saw some positive comments about the economy from Hilton and Visa as far as summer travel spending. Chipotle is doing pretty well. You had very strong durable goods numbers. So all of a sudden now we’re getting a rosier picture of the economy,” Moya said.

See: Google and Microsoft earnings show the bar has been lowered for Big Tech

Companies in focus
  • Boeing Co. 
    stock lost 0.9% Wednesday, after the aerospace and defense company reported a wider-than-expected second-quarter loss and missed on revenue, but beat free cash flow (FCF) forecasts by a wide margin.

  • Visa Inc
    shares lost 3.6% Wednesday, after the company topped expectations with its latest results Tuesday and gave an upbeat signal to investors about the resilience of spending volumes in the current macroeconomic climate.

  • Kraft Heinz Co.
    shares declined 7.4% Wednesday, after the company reported second-quarter net income of $265 million, or 21 cents per share, after a loss of $27 million, or 2 cents per share, last year. 

  • Shares of Chipotle Mexican Grill Inc.
    rallied 13.3% Wednesday after the fast-casual restaurant chain beat Wall Street’s quarterly expectations as menu price increases took out some of the sting from rising costs it faced.

  • Hilton Worldwide Holdings Inc. shares
     jumped 5% Wednesday, after the hotel chain blew past estimates for the second quarter. The company posted net income of $368 million, or $1.32 a share, for the period, up from $130 million, or 46 cents a share, in the year-earlier period. 

  • Texas Instruments Inc.
    shares rose 5% Wednesday after the chip maker reported a big earnings beat for the quarter and an outlook that was mostly above Wall Street estimates.

Other assets
  • The yield on the 10-year Treasury note
     declined 3.5 basis points to 2.771%.

  • The ICE U.S. Dollar Index
    a measure of the currency against a basket of six major rivals, was up 0.1%.

  • The U.S. oil benchmark 
    gained 2.3% to $97.12 a barrel on the New York Mercantile Exchange, while gold futures 
    edged down 0.2%.

  • The Stoxx Europe 600 
    gained 0.5% and London’s FTSE 100 UKX, 0.61% rose 0.7%.

  • The Shanghai Composite 
     ended 0.1% lower, while the Hang Seng Index 
     lost 1.1% in Hong Kong and Japan’s Nikkei 225 NIK, +0.22% gained 0.2%.

— Steve Goldstein contributed to this article.

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