Closing Market Update: Stocks Extend Gains After Fed Holds Line on Rates

Closing Market Update: Stocks Extend Gains After Fed Holds Line on Rates

U.S. equities rose again Wednesday, with the S&P 500® index (SPX) up for the third-straight day and closing at its highest level in a week, after the Federal Reserve held benchmark interest rates unchanged, as expected. Central bank Chair Jerome Powell also offered upbeat remarks on the economy but said little to alter the market’s growing conviction that the Fed is done hiking rates.

Semiconductor makers and other technology companies led gains, helping lift the Nasdaq Composite® (COMP) to its fourth-straight gain as investors readied for Thursday’s quarterly earnings from industry bellwether Apple Inc. (AAPL).

As for the Fed meeting, Powell continued to straddle a rhetorical fence, pointing to “significant progress” in subduing price pressures but also noting that the Fed believes inflation is still too high.

“We’ve achieved significant progress on inflation,” Powell said in a press briefing following the conclusion of the Federal Open Market Committee’s (FOMC) latest meeting. However, “it’s still likely we need to see slower growth and softening labor conditions to reach price stability. Inflation is down but remains well above our target. The labor market is still tight by many measures.”

Stocks climbed to highs for the day during Powell’s briefing, suggesting investors didn’t hear anything alarming or that diverged meaningfully from the Fed’s months-long messaging. Expectations that the FOMC will remain on hold again in December increased slightly.

Here is where the major benchmarks ended:

    The SPX was up 44.06 points (1.1%) at 4,237.86; the Dow Jones Industrial Average® (DJI) was up 221.71 points (0.7%) at 33,274.58; the COMP was up 210.23 points (1.6%) at 13,061.47.The 10-year Treasury note yield (TNX) was down about 11 basis points at 4.761%.Cboe Volatility Index® (VIX) was down 1.30 at 16.84.

In addition to technology, communication services and utilities were among the strongest sectors Wednesday. Energy shares were under pressure as crude oil futures extended this week’s slump and ended at a two-month low. The U.S. dollar index (DXY) tumbled from an earlier rally to a one-month high, potentially reflecting expectations that domestic interest rates may be near a peak.

Stocks on the move

The following companies had stock price moves driven by quarterly earnings, analyst ratings, or other news:

    Advanced Micro Devices (AMD) jumped 9.7% after the chipmaker’s third-quarter results topped forecasts and the company provided an upbeat outlook for artificial intelligence GPU revenue.CVS Health Corp. (CVS) fell 0.4% after the pharmacy chain reported higher-than-expected medical benefit costs, overshadowing stronger-than-expected earnings.DuPont de Nemours (DD) dropped 8.2% after the chemical company reported lower-than-expected third-quarter revenue. Estee Lauder Companies (EL) tumbled 18.7% after the cosmetics company’s third-quarter results disappointed investors.Ford Motor Co. (F) rose 1.4% after Barclays upgraded the automaker’s stock to “overweight” from “equal weight,” citing a historically low valuation and optimism over the 2024 outlook following the recent settlement of the United Auto Workers strike.Garmin Ltd (GRMN) rose 11% after the technology company reported stronger-than-expected third-quarter revenue and boosted its full-year guidance.Generac Holdings (GNRC) jumped 14% after the generator maker’s quarterly results surpassed expectations.Humana (HUM) fell 6.6% after the insurance company lowered its full-year earnings per share guidance.Match Group (MTCH) dropped 15% after the dating-services company released a weaker-than-expected forecast for the current quarter.Paycom Software (PAYC) plunged 38% after the HR and payroll company’s quarterly results disappointed investors. Trimble (TRMB) fell 13% after the software maker reported unexpectedly low third-quarter revenue and reduced its full-year outlook. Scott’s Miracle-Gro (SMG) gained nearly 19% after the lawncare company posted a smaller-than-expected quarterly loss and management expressed optimism the company’s finances will improve in 2024.WeWork Inc. (WE) plunged 46% after The Wall Street Journal reported that the shared workspace company plans to file for Chapter 11 bankruptcy protection as soon as next week.Yum China (YUMC) dropped 15% after the fast-food restaurant operator’s third-quarter revenue fell short of expectations.

Thursday serves up another heavy batch of earnings, highlighted by Apple, which is expected to report results after the market close. Investors will likely be listening for any updates on sales of the recently launched iPhone 15, as well as the company’s China business. Apple has posted year-over-year revenue declines for the previous three quarters, and analysts expect another drop, about 6% on average. Still Apple shares are up nearly 40% so far this year.

Other major companies expected to report quarterly earnings Thursday include ConocoPhillips (COP), Eli Lilly (LLY), Ferrari N.V. (RACE), Marriott International (MAR), Monster Beverage (MNST), Shopify (SHOP), and Starbucks (SBUX).

Fed and inflation

The Fed has increased its benchmark funds rate 11 times since March 2022, most recently a quarter-point boost in July, as the central bank has attempted to subdue inflation that had soared to four-decade highs in recent years. The federal funds rate remains at a 22-year-high target range of 5.25% to 5.50%.

Those efforts appear to be working. The year-over-year increase in the Consumer Price Index (CPI) peaked around 9% in the summer of 2022 but had fallen to 3.7% as of September.

But the inflation rate is still nearly double the Fed’s 2% long-term target, as Powell reminded reporters Wednesday.

Fed policymakers are “going meeting by meeting and asking ourselves if we’ve achieved a stance of policy that will get inflation to 2% over time,” Powell said. “We’ve come very far with this rate-hiking cycle. The belief in September was we were close to the end of the cycle. We’re proceeding carefully because we can proceed carefully.”

Nonetheless, investors appear to be betting that the Fed’s July hike was the last of this tightening cycle. Late Wednesday, futures traders pegged 80% odds the FOMC will hold the funds rate unchanged at its December meeting, up from about 69% Tuesday, according to the CME FedWatch Tool.

The next big thing on the economic data front will likely be Friday’s employment report for October from the Labor Department, which is expected to show that job growth is slowing. Analysts expect the economy to have added 180,000 new nonfarm jobs in October, according to Trading Economics. That would be down from 336,000 in September.

Earlier Wednesday, private payroll processor ADP reported 113,000 positions had been created in October, slightly above the 100,000 that analysts had expected, according to September’s figure stayed unchanged at 89,000.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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