After a brief bout of weakness, the stock market ended the day sharply higher after the Federal Reserve raised interest rates by a quarter point and signaled that six more could follow.
It was a crazy day for the
Dow Jones Industrial Average,
who gained more than 500 points, returned all of those gains before finishing up 519 points, or 1.6%. the
ended up rising 2.2%, while
The market is grappling with the potential impact of what, on the face of it at least, seemed like a pretty straightforward meeting. The Fed said it would raise the federal funds rate by a quarter of a percentage point, which the markets had expected. The Fed also estimates that the rate will reach 2.75% by the end of 2023, which would include increases of seven quarter points this year and more next year. It wasn’t far from the consensus either. Regarding its balance sheet, the Fed said it would begin reducing its bond holdings “at an upcoming meeting.” Through it all, President Jerome Powell has made it clear that his main objective is to fight inflation, which hit a 40-year high last month.
Not only did the Fed’s decision send stocks tumbling, it moved the bond market. The 2-year Treasury yield climbed to 1.92% from 1.88% just before the announcement, while the 10-year yield fell to 2.16% from 2.18% minutes before the announcement . When the spread between the yields of the two Treasuries narrows, it can spell concern for the economy.
Markets now understand that the Fed is almost solely focused on reducing inflation, which likely means slowing economic demand as well. “The Fed is not concerned about economic growth right now,” said Tom Essaye, founder of Sevens Report Research. “He is not worried about Ukraine. He is very concerned about inflation and they are very focused on raising rates.
Still, the stock market continued a very strong week. Reports of diplomatic progress in talks between Russia and Ukraine have emerged – they could make progress on a 15-point peace deal that includes a ceasefire and Russian withdrawal provided kyiv agrees to limits on his military, according to the Financial Times. Additionally, according to multiple reports, Ukrainian President Volodymyr Zelensky said talks between the two sides seemed “more realistic.”
As a result, the price of WTI crude oil fell 1.9% around $94 a barrel and 28% from the multi-year high of $130 reached earlier this month. The concern is that the continuation of the war will cause Western countries to stop buying Russian oil – the United States has already imposed an import ban – thus reducing global supply. The rise in the price of oil adds to the already heavy inflation that consumers have had to deal with.
Mark Haefele, chief investment officer of global wealth management at UBS, said the drop in the oil market this week “partly reflects the easing of fears of further supply disruptions based on negotiations between Russia and Ukraine”.
A silver lining for markets going forward, however, is that stocks are already battered — the S&P 500 is down about 9% from its all-time high — and investors have plenty of cash. According to Bank of America’s survey of fund managers, funds are holding 5.9% of their portfolios in cash, the highest level since April 2020 when the pandemic took hold. that stocks will rise, as the percentage of total holdings is also the lowest since April 2020. This means that investors may feel the need to get back into the market, pushing stocks higher.
And that’s often what strategists recommend investors do after big declines. “We continue to recommend putting fresh money to work when the market is down 10% or more,” wrote Christopher Harvey, head of equity strategy at Wells Fargo.
Nowhere was buying demand clearer than in Asia, where traders had a dramatic day after China’s top administrative authority said it would work to stabilize China’s stock markets and spur growth. economy, the official Xinhua news agency reported.
It spurred a big rally, with shares of some of China’s biggest companies up 20% as the Hang Seng posted its biggest daily gains since 2008. But the key Chinese stock index is still deep in territory. correction, down nearly 14% this year and some 40% below its all-time closing high in 2018.
Popular Chinese stocks listed in the United States soared, with
(symbol: BABA) up 37% in the United States
(JD) jumped 39%, with
(NTES) climbing 26%.
Yum China Holdings
(YUMC) gained 9.5%.
(WYNN), which sees 40% of its sales come from China according to FactSet, saw its stock gain 8.1%.
Las Vegas Sands
(LVS), which makes the majority of its sales in China, saw its shares rise 12%.
(SBUX) gained 5.2%. The company sees 12% of its sales come from China, and it got an upgrade to Overweight from Neutral at JPMorgan. Additionally, current CEO Kevin Johnson is set to retire and the interim CEO will be former chef Howard Schultz.