U.S. stocks rise sharply after Fed announces second consecutive 0.75% hike
Stocks on Wall Street are closing solidly higher Wednesday after the Federal Reserve ratcheted up its campaign against surging inflation by raising its key interest rate three-quarters of a point. The Fed's latest hike lifts the benchmark short-term rate to its highest level since 2018.
The S&P 500 climbed 103 points to 4,024, or 2.6% and the Dow Jones Industrial Average closed higher 1.4% higher at 32,198. The tech-heavy Nasdaq jumped 4% — the most in over two years. Strong earnings from Google's owner Alphabet, Microsoft and other companies helped lift investors' mood.
Stocks on Wall Street were solidly higher in afternoon trading Wednesday after the Federal Reserve raised its key interest rate by a widely expected three-quarters of a point as the central bank ratchets up its campaign to quell surging inflation.
The Fed's move, its second three-quarters of a point hike in row, raises its benchmark short-term rate to the highest level since 2018. The central bank's decision comes as inflation has accelerated to 9.1%, the fastest annual pace in 41 years.
"With inflation ticking higher again in June, a 75-basis point hike was certainly warranted and the Fed delivered," said Charlie Ripley, senior investment strategist at Allianz Investment Management. "That being said, recent economic data is now introducing a higher degree of uncertainty around the path of policy as we move forward from here."
Markets were spooked Monday after retail giant Walmart warned that its profits are being hurt by rising prices for food and gas, which are forcing shoppers to cut back on more profitable discretionary items such as clothing.
The retailer's profit warning in the middle of the quarter was rare and raised worries about how the highest inflation in 40 years is affecting the entire retail sector.
Meanwhile, some parts of the economy are already slowing because as the Fed has raised rates, particularly the housing industry. Sales of previously occupied U.S. homes slowed in June for the fifth month in a row as mortgage rates have climbed sharply this year. Expectations of higher overall rates has pushed up the 10-year Treasury yield, which influences rates on home loans.
"The main risk at this stage is in fact an inflation 'overkill' with monetary tightening too abrupt, unnecessarily pushing up the unemployment rate," Thomas Costerg of Pictet Wealth Management said in a report. Costerg said most economic indicators and lower commodity prices already point to slower inflation ahead.
Meta posts first-ever decline
Investors kept an eye on the latest batch of corporate earnings reports Wednesday, including strong earnings from Google's owner Alphabet and Microsoft.
Shares in Microsoft and Google parent Alphabet rose 6.7% and 7.9%, respectively, after their latest quarterly reports. Boeing shares slipped 0.1% despite the aerospace company reporting it delivered more planes in the first quarter than it has since the start of the pandemic.
Facebook and Instagram's parent company Meta posted its first revenue decline in history Thursday, dragged by a drop in ad spending as the economy falters — and as competition from rival TikTok intensifies.
Technology and communication services stocks accounted for a big share of the S&P 500′s gains. Nvidia rose 7.3% and Netflix added 5.1%.
Retailers, restaurant chains and other companies that rely on direct consumer spending also helped lift the market. Chipotle Mexican Grill jumped 14.9% after the restaurant chain reported second-quarter earnings that beat analysts' forecasts.
Spotify Technology vaulted 12.7% after the music streaming service reported monthly active user and premium subscriber numbers that exceeded the Street's expectations.
Investors will get quarterly results from Ford Motor Co. as well as Facebook's parent company Meta Platforms after the closing bell.