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Dow surges 900 points, books best day since 2020, after Fed takes 3/4-point rate hikes off table

U.S. stocks end sharply higher, after the Federal Reserve delivered the first 50-basis-point interest rate hike since 2000, but said larger 75-basis-point increases weren’t in play.

The Fed also outlined plans to reduce its near $9 trillion balance sheet.

How did stocks trade?
  • The Dow Jones Industrial Average
     rose 932.27 points, or 2.8%, ending at 34,061.06, and booking its best daily percentage gain since Nov. 9, 2020, according to Dow Jones Market Data.

  • The S&P 500
     jumped 124.69 points, or 3%, ending at 4,300.17, its best daily percentage climbs since May 18, 2020.

  • The Nasdaq Composite rose 401.106 points, or 3.2%, finishing at 12,964.68, its best day since March 16.

On Tuesday, the Dow industrials
rose 67.29 points, or 0.2%, to close at 33,128.79, the S&P 500 
gained 0.5% to finish at 4,175.48. The Nasdaq Composite 
added 0.2% to end at 12,563.76.

Read: ‘Bubble stocks popped’ but it’s still not safe to buy them, says Ray Dalio, founder of world’s biggest hedge fund

What drove markets?

Stocks finished sharply higher Federal Reserve Chairman Jerome Powell said a 75-basis-point increase wasn’t being actively considered by policy makers, after the Fed pulled the trigger on a half percentage point interest rate hike, as expected, and announced the start of “quantitative tightening,” or reducing its near $9 trillion balance sheet. Powell said half-point rises remain on the table for the next couple of meetings.

See: Fed lifts interest rates by 1/2 point and to launch sell-off of $9 trillion bond stockpile in June

The 50-basis point move was the biggest from the U.S. central bank since 2000 when President Bill Clinton occupied the White House, and comes as the central bank works to cool hot inflation without setting off an economic recession.

Powell talked about a strong economy, but also the pain consumers have been feeling at the grocery store and gas pump, in afternoon news conference, saying higher interest rates are the cure.

Clarity from the Fed on size and scope of future rate increases could give beleaguered stocks a lift, say some analysts.

“Honestly, I think this hiking cycle is going to be quite a bit shorter than the market is pricing in right now,” said Bill Callahan, investment strategist at Schroders, by phone, after the Fed decision. “I think the Fed sees the slowing economic data, and I think they are raising rates now as quickly as possible so they have some ammunition to cut on the other side of this.”

The central bank also outlined a process to slash its balance sheet, first by $47.5 billion a month starting in June, but ramping up to $95 billion a month.

Russell Price, chief economist at Ameriprise Financial, said the question is what factors will be in play in terms of how long Fed officials continue with 50 basis point hikes.

“In the early 1990s, we were able to go through a rate-hiking cycle and avoid an economic downturn,” he said, by phone. “Quite frankly, it’s the only time we’ve achieved a soft landing in the last five interest rate hiking cycles.”

Bryce Doty, senior portfolio manager at Sit Fixed Income, warned “there is more pain to come as yields continue to move higher,” even with “the carnage incurred by bond investors so far this year.”

“While the worst may be over in terms of bond market losses with the Bloomberg Aggregate Bond Index down 9.5% in the first four months of the year, inflation is still a problem,” Doty said in emailed comments Wednesday.

The yield on the 10-year Treasury note
fell 4.3 basis point to 2.914%, while that of the 2-year
shed 15.4 basis points to 2.614%.

There was also was a slew of U.S. economic data, with private payrolls climbing by 247,000 in April, according to the ADP National Employment Report released Wednesday. Economists polled by The Wall Street Journal had forecast a gain of 390,000 private sector jobs.

The U.S. trade deficit also jumped 22.3% to record $109.8 billion in March, the U.S. Census Bureau and the U.S. Bureau of Economic Analysis said Wednesday. U.S. imports climbed 10.3% to $351.5 billion, while U.S. exports increased 5.6% to $241.7 billion in March.

In addition, the Institute for Supply Management services index showed weaker new-orders growth and employment, with the number dropping to 57.1% in April from 58.3%, below forecast.

Oil was also in focus, with prices for Brent

up 4.9% and West Texas Intermediate crude


up 5.4% after the European Union proposed banning Russian oil imports under a phased six-month plan, and refined products within a year.

Investors also digested a fresh batch of corporate earnings on Wednesday, with results expected from eBay Inc.
and Etsy Inc.
among others, after the close.

Which companies were in focus?
  • Shares of Moderna Inc.
    rose 5.8%, after the company smashed Wall Street’s earnings and revenue expectations for the quarter.

  • Lyft Inc.
    stock tumbled 29.9% after the ride-hailing group reported a better-than-expected first quarter, but profit and sales guidance disappointed. Shares of rival Uber Technologies Inc.
    fell 4.7%, after the company reported a $5.93 billion net loss in the first quarter derived from its investments in other three companies.

  • Chinese ride-hailing company Didi Global Inc.
    American depository receipts rose 0.5%, after the company said it was under investigation by the Securities and Exchange Commission regarding its 2021 IPO.

  • Herbalife Nutrition Ltd.
    slid 6.2% toward a two-year low after the multilevel marketing company announced forecast reductions due to newer “distributors.”

  • Airbnb Inc.
    shares climbed 7.7% after the lodging-booking company reported forecast-beating results and said it surpassed 100 million nights booked in a quarter for the first time.

  • Match Group Inc.
    stock rose 6.2% after the online-dating company’s revenue outlook fell short of expectations.

  • Starbucks Inc.
    stock rose 9.8% after the coffee giant reported in-line earnings amid rising costs and inflation and thinner margins. Chief Executive Howard Schultz said “record” demand was helping accelerate store-growth plans.

  • Advanced Micro Devices Inc.
    shares rose 9.1% after the semiconductor company reported more than $5 billion in quarterly revenue for the first time Tuesday.

How did other assets fare?
  • The ICE U.S. Dollar Index 
     a measure of the currency against a basket of six major rivals, was down 0.8%.

  • Gold futures 
    slipped, with gold for June delivery 
    shedding 0.1% to settle at $1,868.80 an ounce.

  • Bitcoin 
    was up 6% near $40,000.

  • In European equities, the Stoxx Europe 600 
    closed down 1.1%. London’s FTSE 100 
     dropped 0.9%.

  • In Asia, the Hang Seng Index 
    fell 1.1% in Hong Kong, while many other Asian markets remained closed for a holiday.

–Barbara Kollmeyer contributed reporting