Stocks Surge as Fed Holds Rates, Economic Data Eases Concerns
Stocks experienced a significant surge on Wednesday as the Federal Reserve decided to keep interest rates unchanged and economic data revealed positive signs. The Dow closed higher for the third consecutive session, rebounding from last week’s seven-month closing low.
The Nasdaq saw a surge of 1.6 percent, gaining 210.23 points to reach 13,061.47. The S&P 500 also jumped by 1.1 percent, adding 44.06 points to reach 4,237.86. The Dow advanced by 0.7 percent, with a gain of 221.71 points to reach 33,274.58.
The Federal Reserve’s decision to maintain the target range for the federal funds rate between 5.25 and 5.50 percent was widely expected by traders. This marks the third time in four meetings that the central bank has chosen not to raise rates. While the accompanying statement suggested that the Fed is considering additional rate hikes in order to reach its 2 percent inflation objective, many traders are optimistic that the current cycle of increases is over.
The Fed tried to deliver a hawkish hold but Wall Street is not believing additional tightening will happen this cycle, said Edward Moya, senior market analyst at OANDA.
The statement also noted that tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. This statement, which included the term financial alongside tighter credit conditions, reflects the recent surge in treasury yields.
Some might take this as a sign that the bond market will continue to help them with this tightening cycle, which could support the argument that a peak in rates is in place, Moya added.
The positive reaction to the Fed’s decision was further bolstered by the release of weaker than expected U.S. economic data. A report from payroll processor ADP revealed that private sector employment in the U.S. increased by 113,000 jobs in October, falling short of economists’ expectations of a 150,000 job increase.
Additionally, the Institute for Supply Management reported an unexpected contraction in manufacturing activity in the U.S. in October. The manufacturing Purchasing Managers’ Index (PMI) dropped to 46.7, below the 50 threshold that indicates a contraction. Economists had anticipated the index to remain unchanged compared to the previous month.
Despite these concerns, housing stocks experienced a significant spike during the trading session, leading to a 3.5 percent increase in the Philadelphia Semiconductor Index. Semiconductor stocks also saw strong gains, with the Philadelphia Semiconductor Index surging by 2.3 percent.
Advanced Micro Devices (AMD) played a significant role in driving the semiconductor sector higher after reporting better than expected third quarter earnings and providing positive guidance for its AI chip business.
Computer hardware stocks also performed well, with the NYSE Arca Computer Hardware Index jumping by 1.9 percent.
In overseas trading, stock markets across the Asia-Pacific region mostly moved higher. Japan’s Nikkei 225 Index experienced a surge of 2.4 percent, while South Korea’s Kospi jumped by 1.0 percent.
The major European markets also saw gains, with the U.K.’s FTSE 100 Index rising by 0.3 percent, the French CAC 40 Index advancing by 0.7 percent, and the German DAX Index increasing by 0.8 percent.
As the market continues to react to the Federal Reserve’s decision and economic data, traders will also be closely monitoring reports on initial jobless claims, labor productivity, and factory orders.
Overall, Wednesday’s surge in stocks, along with the Federal Reserve’s decision and the release of economic data, have eased concerns about the outlook for interest rates and provided some relief to investors.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult with a professional financial advisor before making any investment decisions.