U.S. stocks aim for gains in volatile trade after Fed raises interest rates for first time in 4 years, signals more to come

U.S. stocks aim for gains in volatile trade after Fed raises interest rates for first time in 4 years, signals more to come

A U.S. stocks rally lost steam, with the Dow briefly turning negative Wednesday afternoon, after the Federal Reserve pulled the trigger on its first interest rate hike since 2018, while indicating more rate increases and balance sheet reduction will follow.

Investors also watched Ukraine-Russia developments and a quick retreat in oil prices from recent highs.

What’s happening
  • The Dow Jones Industrial Average
    DJIA,
    +0.54%

    rose 80 points, or 0.2%, to 33,628.

  • The S&P 500
    SPX,
    +1.15%

    gained 19 points, or 0.5%, to trade around 4,283.

  • The Nasdaq Composite Index
    COMP,
    +2.45%

    rose 155 points, or 1.2%, to 13,104.

Stocks in the previous sessions saw the Dow rise 599 points, or 1.8%, while the S&P 500 jumped 2.1% and the Nasdaq Composite surged 2.9%.

What’s driving markets

The spotlight was squarely on aggressive tones from the Federal Reserve, which delivered a quarter-percentage point interest-rate increase, as widely anticipated.

The Fed’s policy statement also indicated the potential for seven rate hikes this year, and that balance sheet reduction will begin at a coming meeting, as it looks to tighten financial conditions to tame inflation.

See: Fed raises rates and plots strategy of steady further increases

Up next is Chairman Jerome Powell’s news conference at 2:30 p.m. Market participants will be looking for more specifics on how the Fed eventually will shrink its balance sheet and Powell’s assessments of how the Russia-Ukraine war alters the outlook for inflation and economic growth.

Investors expect the Fed to forecast “growth is going down, inflation is moving up interest-rate increases are likely to be more aggressive,” said Anthony Saglimbene, global market strategist at Ameriprise Financial, in a phone interview.

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Even with that backdrop, Saglimbene said investors have been “nibbling” at higher-quality stocks that have been battered in recent weeks, particularly with oil prices declining sharply this week.

A sharp drop by oil futures also was credited with lifting risk appetite on Tuesday, with U.S. benchmark West Texas Intermediate crude
CL.1,
-1.28%

and global benchmark Brent crude
BRN00,
+0.09%

both plunging back below $100 a barrel after a surge last week to 14-year highs. U.S. oil futures were near $95 a barrel Wednesday.

President Joe Biden took to Twitter on Wednesday to criticize high gas prices despite this week’s tumble in oil prices, warning that oil companies shouldn’t “pad their profits at the expense of hardworking Americans.” Biden also delivered a brief address on developments in Ukraine, announcing $800 million in additional military aid to Kyiv.

Ukrainian President Volodymyr Zelensky, speaking to the U.S. Congress by video, continued to push for a no-fly zone, asked for more military aid and called for additional sanctions on Russia, as diplomatic talks between Russia and Ukraine to end the war continued. The Financial Times reported that negotiators had made significant progress toward a 15-point plan that includes a cease-fire and withdrawal of Russian troops if Kyiv declares neutrality and accepts limits on its military.

Against that backdrop, Eddy Elfenbein, portfolio manager of the AdvisorShares Focused Equity ETF
CWS,
+1.24%
,
expects volatile markets to continue as long as the S&P 500 is trading below its 50-day average, which on Tuesday was 4,454.

“Rates are going higher and the market’s focus is changing. Since November, low-volatility stocks have been back in favor. This trend will probably last for several months,” he said.

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In economic reports, sales at U.S. retailers slowed sharply in February, rising 0.3%, and Americans probably bought fewer goods like groceries, consumer electronics and furniture after factoring in high inflation. Economists polled by The Wall Street Journal had forecast a 0.4% advance.

The previously reported 3.8% increase in sales in January, however, was raised to 4.9%, the government said Wednesday.

Read: What happens to money when the Fed starts shrinking its balance sheet?

Which companies are in focus?
  • Shares of coffee-maker Starbucks
    SBUX,
    +4.10%

    rose 4.1% after it announced the return of company founder Howard Schultz as CEO on an interim basis, as Kevin Johnson, who has lead Starbucks for five years, plans to step down on April 4.

  • Shares of battered Chinese stocks were rebounding after brutal losses in recent days, with U.S.-listed shares of Alibaba Group Holding
    BABA,
    +34.28%
    ,
     JD.com
    JD,
    +36.82%

    and Pinduoduo Inc.
    PDD,
    +55.40%

    were up double-digits.

  • Shares of NortonLifeLock
    NLOK,
    -14.30%

     fell 14.6% after the company’s proposed acquisition of Avast raised competition concerns.

How are other assets faring?
  • The yield on the 10-year Treasury note TMUBMUSD10Y rose 8 basis points to 2.24%, after the Fed decision. Yields and debt prices move opposite each other.

  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down 0.2%.

  • Gold for April delivery GCJ22 GC00 closed 1.1% lower at $1,909.20 an ounce.

  • Bitcoin BTCUSD edged up 0.6% at about $40,000.

  • The Stoxx Europe 600 
    SXXP,
    +3.06%

    jumped 3.2%, while London’s FTSE 100 
    UKX,
    +1.62%

    gained 1.7%.

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Steve Goldstein contributed reporting to this article.

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