U.S. Stocks Close Sharply Higher Following Fed Rate Hike

wallstreet2 061318 15jun22 lt

Following the mixed performance seen during trading on Tuesday, stocks showed a strong move to the upside in Wednesday's session. With the upward move, the Dow and the S&P 500 regained ground after ending Tuesday's session at their lowest closing levels in over a year.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow jumped 303.70 points or 1 percent to 30,668.53, the Nasdaq spiked 270.81 points or 2.5 percent to 11,099.15 and the S&P 500 surged 54.51 points or 1.5 percent to 3,789.99.

The rally on Wall Street came even as the Federal Reserve announced the biggest increase in interest rates in almost thirty years.

The Fed revealed that it has decided to raise the target rate for the federal funds rate by 75 basis points to 1.50 to 1.75 percent, marking the biggest rate hike since 1994.

The widely expected move by the Fed comes as a recent report from the Labor Department showed consumer price inflation at the fastest annual rate in forty years.

Citing its goals of maximum employment and inflation at a rate of 2 percent over the longer run, the Fed also indicated that further rate hikes are likely to be appropriate.

In his post-meeting press conference, Fed Chair Jerome Powell indicated the central bank could raise interest rates by another 75 basis points at its next meeting in late July.

The Fed also said it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

In its assessment of the U.S. economy, the Fed said overall economic activity appears to have picked up after edging down in the first quarter.

The central bank described recent jobs gains as "robust" and noted the unemployment rate has remained low.

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures," the Fed said.

However, the decision to raise interest rates by 75 basis points was not unanimous, as Kansas City Fed President Esther George preferred raising rates by 50 basis points.

On the U.S. economic front, the Commerce Department released a report showing an unexpected decrease in U.S. retail sales in the month of May.

The report showed retail sales fell by 0.3 percent in May after climbing by a downwardly revised 0.7 percent in April. Economists had expected retail sales to edge up by 0.2 percent compared to the 0.9 percent increase originally reported for the previous month.

Excluding the steep drop in sales by motor vehicles and parts dealers, retail sales rose by 0.5 percent in May following a 0.4 percent increase in April. Ex-auto sales were expected to advance by 0.8 percent.

A separate report released by the Labor Department showed U.S. import prices increased by less than expected in the month of May.

The Labor Department said import prices climbed by 0.6 percent in May after rising by a revised 0.4 percent in April.

Economists had expected import prices to jump by 1.1 percent compared to the unchanged reading originally reported for the previous month.

Meanwhile, the report showed export prices surged by 2.8 percent in May following a 0.8 percent increase in April. Export prices were expected to shoot up by 1.3 percent.

The Federal Reserve Bank of New York also released a report showing regional manufacturing activity was little changed in the month of June.

Another report from the National Association of Home Builders showed homebuilder confidence fell to its lowest level since June 2020.

Sector News

Networking stocks showed a substantial move to the upside on the day, driving the NYSE Arca Networking Index up by 2.8 percent.

Significant strength was also visible among biotechnology stocks, as reflected by the 2.6 percent jump by the NYSE Arca Biotechnology Index.

Retail stocks also turned in a strong performance despite the disappointing retail sales data, with the Dow Jones U.S. Retail Index surging up by 2.6 percent.

Commercial real estate, computer hardware and steel stocks also saw considerable strength on the day, while energy stocks moved lower along with the price of crude oil.

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 slumped by 1.1 percent, while China's Shanghai Composite Index rose by 0.5 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index jumped by 1.2 percent, the German DAX Index and the French CAC 40 Index both surged up by 1.4 percent.

In the bond market, treasuries regained ground after moving sharply lower over the past few sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 8.8 basis points to 3.395 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed announcement, while reports on initial jobless claims, housing starts and Philadelphia-area manufacturing activity are also likely to attract attention.

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