Stocks rose in an intraday reversal on Wednesday as investors shrugged off a quarter-point rate hike from the Federal Reserve and instead focused on comments from Fed Chair Jerome Powell acknowledging falling inflation.
The S&P 500 gained 1.05% to close at 4,119.21, reversing an earlier drop of nearly 1%. The Nasdaq Composite was up 2% to close at 11,816.32, driven by gains in chipmakers after strong gains from modern micro devices. Meanwhile, the Dow Jones Industrial Average rose 6.92 points, or 0.02%, to 34,092.96 — after falling more than 500 points from daily lows.
The Fed’s latest rate hike represented a slowdown from its half-point hike in December, benefiting investors who were hoping the central bank would tone down its aggressive tightening campaign. They were further encouraged by Powell’s comments.
“We can now say for the first time that the disinflation process has started. We can see that and we’re really seeing it in commodity prices so far,” Powell said at the press conference after the meeting.
However, the central bank gave no real indication of a pause in rate hikes, noting in its post-meeting statement that “sustained increases in the target range will be appropriate to achieve monetary policy tight enough to push inflation back to 2 percent over time.”
In a comment at the press conference, Powell added that the Fed still has some time to remain hawkish and the central bank has more work to do.
“I don’t see any signs yet that the Fed is open to rate cuts in 2023,” said Bill Zox, portfolio manager at Brandywine Global. “I’m not sure the Fed is even aiming for a soft landing. Although they would never say so, they might prefer the restorative aspects of a recession and a full-blown bear market.”
There have been some signs recently that inflation is slowing across the economy and the Fed acknowledged this, saying in its post-meeting statement that it “has eased somewhat but is still elevated”.
Equity benchmarks also received a boost as corporate earnings largely continued to show robust gains in the fourth quarter. peloton Shares rose 26.5% after the fitness equipment company said its net loss narrowed year-over-year. modern micro devices Shares gained 12.6% after the semiconductor company reported a fourth-quarter profit decline.
Wall Street has had a strong month. The S&P 500 posted its best January performance since 2019, while the tech-heavy Nasdaq Composite posted its strongest January in 22 years.