Post-Fed Volatility Results In Mixed Close On Wall Street

Stocks saw substantial volatility following the Federal Reserve’s monetary policy announcement on Wednesday. The major averages showed wild swings back and forth across the unchanged line before eventually closing mixed.

The Nasdaq climbed 53.16 points or 0.4 percent to13,626.48 and the S&P 500 inched up 3.58 points or 0.1 percent to 4,372.59, once again reaching their best closing levels in over a year.

Meanwhile, the narrower Dow slid 232.79 points or 0.7 percent to 33,979.33, pulling back off Tuesday’s four-month closing high.

The late-day volatility came after the Fed announced its widely expected decision to pause its interest rate increases following ten consecutive rate hikes but also forecast additional increases later this year.

The Fed said it has decided to maintain the target range for the federal funds rate at 5 to 5.25 percent, marking the first time the central bank has left rates unchanged since January 2022.

Leaving rates unchanged will allow the Federal Open Market Committee the opportunity to assess additional information and its implications for monetary policy, the Fed said.

However, the central bank’s latest projections suggest the Fed plans to resume raising rates later this year, forecasting a rate of 5.6 percent by the end of 2023.

If the Fed decided to revert to its recent quarter-point increases, the forecast suggests the central bank will raise rates two more times this year.

Back in March, the Fed has predicted interest rates would be at 5.1 percent at the end of the year, in line with the current 5 to 5.25 percent range.

The forecast for additional rate hikes this year comes as the Fed raised its forecast for annual core consumer price growth to 3.9 percent from 3.6 percent.

The gains by the Nasdaq and S&P 500 may reflect optimism that inflation will slow enough to convince the Fed not to follow through on its plans.

“With inflation set to moderate noticeably, we are skeptical that the Fed will resume hiking interest rates,” said Ryan Sweet, Chief US Economist at Oxford Economics. “Our baseline forecast is for the Fed to remain on hold through the remainder of this year before gradually easing in early 2024.”

At the same time, a steep drop by shares of UnitedHealth (UNH) weighed on the Dow, with the managed healthcare and insurance company plunging by 6.4 percent.

UnitedHealth came under pressure after saying seniors are undergoing surgeries delayed during the pandemic, leading to higher costs.

Sector News

Airline stocks moved sharply higher on the day, with the NYSE Arca Airline Index soaring by 2.1 percent to a one-year closing high

Significant strength was also visible among semiconductor stocks, as reflected by the 1.5 percent gain posted by the Philadelphia Semiconductor Index. The index also reached its best closing level in over a year.

On the other hand, banking stocks came under pressure following the Fed announcement, dragging the KBW Bank Index down by 1.8 percent.

Interest rate-sensitive housing stocks also saw notable weakness, with the Philadelphia Housing Sector Index falling by 1.1 percent after ending Tuesday’s trading at its best closing level in over a year.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan’s Nikkei 225 Index jumped by 1.5 percent, while Hong Kong’s Hang Seng Index slid by 0.6 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.’s FTSE 100 Index inched up by 0.1 percent, the French CAC 40 Index and the German DAX Index both rose by 0.5 percent.

In the bond market, treasuries saw considerable volatility following the Fed announcement but managed to close in positive territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.3 basis points to 3.796 percent.

Looking Ahead

While reaction to the Fed announcement may continue to impact trading on Thursday, traders are also likely to keep an eye on a slew of U.S. economic data, including reports on weekly jobless claims, retail sales and industrial production.

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