U.S. stock benchmarks significantly trimmed their morning losses Wednesday, after the release of the minutes of the Federal Reserve’s January meeting reiterated support for a faster pace of interest rate hikes and a significant reduction of the central bank’s near $9 trillion balance sheet.
The minutes were largely in keeping with Fed Chairman Jerome Powell’s more hawkish message at his press conference following the last meeting.
On Tuesday, the Dow industrials surged 422.67 points, or 1.2%, to close at 34,988.84, while the S&P 500 index rose 1.6% to 4,471.07. The Nasdaq Composite climbed 2.5% to 14,139.07.
Stocks were lower, but well off the session’s worst levels, after the release of Federal Reserve minutes of its last policy reiterated central bank support for a faster pace of rate increases and significantly reduction of its balance sheet to help tame inflation.
As expected, the minutes showed interest rate hikes were likely soon, followed by potentially aggressive moves to reduce the central bank’s near $9 trillion balance as inflation sits near 40-year highs.
The hawkish tone of the Fed minutes were largely what Wall Street has come to expect from the U.S. central bank as it works to tamp down high costs of living before they threaten to derail the economy.
Tensions between Russia and the U.S. over Ukraine also were in focus, after a brief lull a day earlier that boosted stocks.
“Investors are rethinking the rally that was prompted by Putin saying some Russian troops had returned to base,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a phone interview. “I think it’s a rethinking of the geopolitical situation.”
On Tuesday, Russian President Vladimir Putin said some troops had withdrawn from the boarder with Ukraine, indicating that he might be persuaded not to invade Ukraine and signaling that Moscow was ready to talk with NATO.
Those hopes appeared to fade, however, Wednesday, after NATO Secretary-General Jens Stoltenberg told reporters that “we have not seen any withdrawal” of those Russian forces. “What we see is that they have increased the number of troops and more troops are on their way,” he said. President Joe Biden urged Moscow to “choose diplomacy” on Tuesday, warning that a Russian move into Ukraine was still possible, and reports of some Russian units returning home couldn’t be verified.
The slump this week on Wall Street comes despite some upbeat U.S. economic data. Sales for U.S. retailers jumped 3.8% in January, the largest since last March, when Americans spent a good chunk of their stimulus money from the government. Economists polled by The Wall Street Journal had forecast after retail sales fell a revised 2.5% in December. Households bought more goods in early 2022 after paring back in the final month of last year.
“Omicron and inflation were not enough to deter US consumers from spending in January as retail sales sprung back to life with a 3.8% surge, the strongest gain since March 2021 when stimulus checks reached households’ bank accounts, wrote Lydia Boussour and Kathy Bostjancic, economists at Oxford Economics.
“The rebound was nearly twice stronger than consensus expectations and led by buoyant vehicle sales and online shopping as virus fear kept consumers away from restaurants,” the economists wrote.
Separately, import prices for January rose 2% and 1.4%, excluding fuel costs and a reading of industrial capacity in use rose 77.6% in January, compared with 76.6% in December.
The National Association of Home Builder’s latest confidence index slipped a point to 82 in February from a month ago. Even so, any reading above 50 indicates improving confidence.
Late-morning Wednesday, Philadelphia Federal Reserve President Patrick Harker said he wants a small interest rate hike in March and then methodical moves that don’t upset the economy’s strong performance.
“I am very supportive of starting a process of raising the fed-funds rate, which is our primary tool of monetary policy, starting to raise that, and I would support as early as March a 25 basis point increase in that rate,” he said, in an interview with the WHYY radio station program “Radio Times.”
Earnings news will continue to roll in on Wednesday, with Nvidia Corp. NVDA, -0.05%, Cisco Systems Inc. CSCO, -0.01%, Applied Materials Inc. AMAT, 0.79%, Tripadvisor Inc. TRIP, -2.19% among the highlights after the close.
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