Stocks rise, dollar pares losses after Fed signals more hikes ahead

The long-expected rate pause became reality today but instead of generating the expected exuberance instead created a choppy and mixed market as investors struggled with the disappointment that it would not be followed by rate cuts but rather almost certainly a couple more hikes before year-end. All in all, the rate pause was good news for tech which rose modestly and, as goes tech usually the cyclical Dow goes opposite, and that’s what happened with the blue chips down 430 points at 2 pm.  

But Powell’s later remarks that the Fed’s inflation fight would not “require weakening the labor market” reassured investors and the indexes rose in late session, the Dow recovering half of its losses by close.  The consensus is that the Fed is doing a good job walking the monetary tightrope and that the pause is prudent, though there remains a high degree of confidence that there will be another hike in July.  Volume was again elevated at 12.1 billion. 

Stocks rise, dollar pares losses after Fed signals more hikes ahead

By Sinéad Carew

Wed June 14, 2023  4:54 PM

DJ: 34,212.12  +145.79        NAS: 13,573.32  +111.40        S&P: 4,369.01  +30.08     6/13

DJ: 33,979.33   -232.79        NAS: 13,626.48  +53.16          S&P: 4,372.59  +3.58       6/14

June 14 (Reuters) - MSCI's global equity index closed slightly higher on Wednesday after a volatile afternoon while the dollar cut its losses after the U.S. Federal Reserve paused interest rate hikes as was widely expected but signaled that it could raise rates by another half percentage point by year-end.  The central bank issued new economic projections that suggested borrowing costs were likely to rise by another half of a percentage point by the end of 2023 due to a stronger-than-expected economy and a slower decline in inflation.  The rate-setting Federal Open Market Committee said that "holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy." It issued its unanimous policy statement at the end of its two-day meeting.

Trading was choppy after the news with the MSCI's gauge of stocks across the globe falling by as much as 0.34% after the Fed statement but then regaining lost ground while Fed Chair Jerome Powell took questions from reporters. It closed up 0.24%.  "Powell is doing an excellent job walking the monetary tightrope, staying close to the center and being balanced," said Quincy Krosby, chief global strategist for LPL Financial.  "He’s acknowledged that inflation is edging lower and said the skip was “prudent.” Moreover, he stressed that the Fed’s mandate is to restore “price stability,” but that the Fed is data dependent."  Krosby said it was likely that Powell's stance that bringing down inflation to the Fed's 2% trader would not "require weakening the labor market dramatically" reassured investors.

The Dow Jones Industrial Average (.DJI) fell 232.79 points, or 0.68%, to 33,979.33, the S&P 500 (.SPX) gained 3.58 points, or 0.08%, to 4,372.59 and the Nasdaq Composite (.IXIC) added 53.16 points, or 0.39%, to 13,626.48.

Angelo Kourkafas, senior investment strategist at Edward Jones, St Louis said "the resilience of the economy keeps the Fed on high alert rather than letting its guard down too soon."  He said "the market realizes that the Fed is getting close to the end of the tightening cycle" and added that since the Fed has hiked rates so much already Wednesday's announcement is "not as hawkish as this might have appeared when they were starting up."

In Treasuries, benchmark 10-year notes were down 4.5 basis points to 3.794%, from 3.839% late on Tuesday. The 30-year bond was last down 6.4 basis points to yield 3.8768%, from 3.941%. The 2-year note was last was unchanged to yield 4.6964%, from 4.696%.  In currencies, the dollar index fell 0.29%, with the euro up 0.38% to $1.0832. The Japanese yen strengthened 0.20% versus the greenback at 139.94 per dollar, while Sterling was last trading at $1.2661, up 0.39% on the day.  In energy, crude oil futures added to losses after the Fed's news. The commodity had given up earlier gains as traders weighed an unexpected, large build in U.S. crude oil against bullish demand growth forecasts.  U.S. crude recently settled down 1.66% at $68.25 per barrel while Brent settled at $73.20, down 1.47%. 

Declining stocks outnumbered rising ones within the S&P 500 (.AD.SPX) by a 1.3-to-one ratio.  The S&P 500 posted 40 new highs and 2 new lows; the Nasdaq recorded 90 new highs and 69 new lows.

Volume on U.S. exchanges was strong, with 12.1 billion shares traded, compared to an average of 10.7 billion shares over the previous 20 sessions.