Stocks saw typical volatility following the Federal Reserve’s highly anticipated monetary policy announcement on Wednesday. The major averages showed wild swings before ending the day narrowly mixed.
While the Dow rose 82.05 points or 0.2 percent to 35,520.12, extending its winning streak to 13 sessions, the S&P 500 edged down 0.71 points or less than a tenth of a percent to 4,566.75 and the Nasdaq slipped 17.27 points or 0.1 percent at 14,127.28.
The late-day volatility came after the Fed announced its widely expected decision to resume raising interest following a pause last month.
The Fed said that it has decided to raise the target range for the federal funds rate by 25 basis points to 5.25 to 5.50 percent. With the increase, the midpoint of the target range is the highest since early 2001.
The decision to increase rates came as the Fed noted inflation remains elevated, while U.S. economic activity has been expanding at a moderate pace and job gains have been robust in recent months.
In his post-meeting press conference Fed Chair Jerome Powell said it is possible the central bank could raise rates again in September or hold steady, noting the central bank plans to take a meeting by meeting approach.
“We’re going to be going meeting by meeting and as we go into each meeting, we’re going to be asking ourselves the same questions,” Powell said.
He added, “So we haven’t made any decisions about any future meetings, including the pace at which we consider hiking, but we’re going to be assessing the need for further tightening that may be appropriate.”
At the same time, the Fed Chief said the central bank can “afford to be a little patient” as they assess incoming economic data.
“The Fed is going to be locked in with all the key inflation data points,” said Edward Moya, senior market analyst at OANDA. “The June CPI report was cooler-than-expected, so if that trend continues, the Fed will probably skip in September.”
CME Group’s FedWatch Tool is currently indicating an 80.0 percent chance the Fed will leave rates unchanged following its next meeting scheduled for September 19-20.
Sector News
Despite the lackluster close by the broader markets, software stocks saw substantial weakness on the day, dragging the Dow Jones U.S. Software Index down by 2.6 percent.
Software giant Microsoft (MSFT) led the way lower, plunging by 3.7 percent after reporting better than expected fiscal fourth quarter results but providing disappointing revenue guidance for the current quarter.
Significant weakness was also visible among semiconductor stocks, as reflected by the 1.5 percent drop by the Philadelphia Semiconductor Index.
On the other hand, transportation stocks moved sharply higher, driving the Dow Jones Transportation Average up by 2.7 percent to its best closing level in over a year.
Railroad operator Union Pacific (UNP) spiked by 10.4 percent after announcing veteran rail executive Jim Vena has been appointed as chief executive officer.
Banking stocks also turned in a strong performance on the day, resulting in a 1.9 percent advance by the KBW Bank Index.
Shares of PacWest Bancorp (PACW) skyrocketed by 26.9 percent after the regional bank agreed to a merger with Banc of California (BANC).
Under the terms of the merger agreement, PacWest stockholders will receive 0.6569 of a share of Banc of California common stock for each share of PacWest common stock.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan’s Nikkei 225 Index closed just below the unchanged line, while China’s Shanghai Composite Index fell by 0.3 percent.
The major European markets also moved to the downside on the day. While the French CAC 40 Index tumbled by 1.4 percent, the German DAX Index slid by 0.5 percent and the U.K.’s FTSE 100 Index dipped by 0.2 percent.
In the bond market, treasuries regained ground after moving lower over the two previous sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, declined 6.1 basis points to 3.851 percent.
Looking Ahead
Trading on Thursday may continue to be impacted by reaction to the Fed decision, while reports on second quarter GDP, durable goods orders, initial jobless claims and pending home sales are also likely to attract attention.
On the earnings front, Facebook parent Meta Platforms (META) is among the companies releasing their quarterly results after the close of today’s trading.
Comcast (CMCSA), McDonald’s (MCD) and Honeywell (HON) are also among the companies due to report their results before the start of trading on Thursday.
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