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Market Snapshot: Dow books 500-point gain after Fed raises interest rates for first time in 4 years, signals more to come

U.S. stocks rallied for a second day in volatile trade Wednesday, with the Dow swinging around in a 600 point range, 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,
+1.55%

rose 331 points, or 1%, to 33,891.

The S&P 500
SPX,
+2.24%

gained 70 points, or 1.7%, to trade around 4,331.

The Nasdaq Composite Index
COMP,
+3.77%

rose 381 points, or 3%, to 13,332.

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 indicated its policy rate could hit 1.9% by the end of the year, climb to 2.8% in 2023 and stay at that level in 2024. Balance sheet reduction could also start in May, as the central bank looks to tighten financial conditions to tame inflation.

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

Chairman Jerome Powell vowed not to let inflation become entrenched in the economy, in an afternoon news briefing. He also said the economy was very strong, with healthy growth expected, despite higher oil prices and the uncertain nature of any potential financial spillover from Russia’s invasion of Ukraine.

While Powell warned it will take longer than previously expected to bring inflation down to the Fed’s target 2% annual rate, he indicated no looming recession risks.

“With unemployment at target and GDP faring well, inflation worries are at the center of the bullseye,” said Jason Brady, president and CEO at Thornburg Investment Management, in emailed comments.

Brady also said the Fed’s guidance on how its plans to shrink its balance sheet “fell short,” adding that the central bank “is going to be forced to choose between a hard landing and entrenched inflation.”

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

Investors expected 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.

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,
-1.46%

and global benchmark Brent crude
BRN00,
-0.22%

both plunging back below $100 a barrel after a surge last week to 14-year highs. U.S. oil futures
CLJ22,
-1.46%

settled 1.5% lower Wednesday at $95.04 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, after Ukrainian President Volodymyr Zelensky pressed U.S. Congress for a no-fly zone, more military aid and called for additional sanctions on Russia, even as diplomatic talks between Russia and Ukraine to end the war continued.

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.

Which companies are in focus?

Shares of coffee-maker Starbucks
SBUX,
+5.16%

rose 4.4% 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,
+36.65%
,
 JD.com
JD,
+39.36%

and Pinduoduo Inc.
PDD,
+56.06%

were up double-digits.

Shares of NortonLifeLock
NLOK,
-13.28%

 fell 14.9% 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 3 basis points to 2.19%, 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 0.3%.

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%.

Steve Goldstein contributed reporting to this article.

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