Wall Street concludes higher after a more confident Fed in its action
The New York Stock Exchange ended Wednesday on a rebound, somewhat reassured by the explanations of the American Central Bank (Fed) which appeared more confident in the effectiveness of its rate hikes in the face of inflation.
According to final results at the close, the Dow Jones index climbed 0.60% to 32,120.28 points. The tech-heavy Nasdaq climbed 1.51% to 11,434.74 points. The S&P 500 rose 0.95% to 3,978.73 points.
The market was waiting for the minutes of the Fed’s last monetary meeting, during which on May 4, for the first time in twenty years, the Central Bank raised its key rates by half a percentage point.
In these minutes, the members of the Monetary Committee ensured that they were determined to bring inflation down sharply, and most of them felt that several further rate hikes of half a point would be “probably necessary”.
Hikes of half a percentage point will “undoubtedly be appropriate at future meetings”, officials agreed.
For Gregori Volokhine, portfolio manager at Meeschaert Financial Services, it was first striking in those minutes that none of the Fed members were pushing for a future 75 basis point rate hike, which was seen as a relief for the market.
“There is one thing that was good for the market, it is that at no time, the members of the Fed mentioned 75 points of increase”, noted the specialist.
“And we are also starting to anticipate one less rate hike, which explains why the market held up a little correctly” on Wednesday, posting a conclusion in positive territory for the third time in four sessions.
“The Fed seems to be hoping for a positive effect of its policy on inflation soon. We have the impression that they are more confident in their action,” added Mr. Volokhine.
“It is not impossible that in July or August we will have encouraging (inflation) figures and the market will then start to anticipate a moment when the restrictive monetary policy will calm down”.
Thus the minutes of the meeting evoke a certain flexibility of the Fed after the first rate hikes: “many participants judged that an accelerated removal of the accommodative policy will put the Committee in a good position later this year to evaluate the effects of this strengthening and to what extent economic developments justify further adjustments”.
For Peter Cardillo of Spartan Capital Securities, the market appears to have “bottomed out last week” as the minutes “ultimately reveal nothing new”.
The analyst still expects three rate hikes of 50 basis points and believes that the stock market “should perform better in the coming weeks”.
While the indices had briefly opened in the red, nine of the eleven S&P sectors ended up, driven by non-essential consumer spending (+2.78%) which has suffered a lot on the stock market in recent weeks.
Energy (+1.96%) and information technology (1.21%) also rose.
The dollar has regained strength, especially against the euro.
On the side, the sports equipment chain Dick’s Sporting Goods, which fell 7% in the first part of the session, finally jumped by almost 10% after announcing better than expected quarterly profits, while lowering its forecasts for profits due to rising costs.
Property developer Toll Brothers climbed almost 8% after reporting an increase in quarterly profits, describing demand as still strong despite some moderation due to rising mortgage rates.
In the bond market, yields on 10-year Treasury bills were stable at 2.74%.