Closing Stock Market SummaryThe S&P 500 rallied 3.0% on Wednesday after Fed Chair Powell said the Fed was not actively considering hiking rates by 75 basis points in coming meetings. The Nasdaq Composite rose 3.2%, the Dow Jones Industrial Average rose 2.8%, and the Russell 2000 rose 2.7%.
All 11 S&P 500 sectors closed higher with gains ranging from 1.1% (real estate) to 4.1% (energy). Ten sectors advanced more than 2.0%.
Mr. Powell added that if the economy evolves as expected, the central bank will likely raise rates by 50 basis points at the next two meetings. The less-hawkish comments followed an FOMC policy decision that was largely in-line with expectations.
Today, the voting committee increased the target range for the fed funds rate by 50 basis points to 0.75-1.00% and approved a plan to shrink the Fed's balance sheet that involves capping reinvestments from principal payments.
Starting June 1, the cap for Treasuries will be initially set at $30 billion per month and then increase to $60 billion after three months. The cap for agency debt and mortgage-backed securities will be set at $17.5 billion per month and then increase to $35 billion after three months.
The 2-yr yield, which is sensitive to changes in the fed funds rate, dropped 15 basis points to 2.61%. The 10-yr yield decreased four basis points to 2.92% after topping 3.00% intraday. The U.S. Dollar Index fell 0.9% to 102.57. The CBOE Volatility Index fell 13.1% to 25.42.
Prior to the Fed decision, growth stocks were underperforming in the wake of disappointing Q2 revenue guidance from Lyft (LYFT 21.56, -9.20, -29.9%). Shares of Lyft plunged 30%. Uber (UBER 28.10, -1.37, -4.7%) fell in 5% in sympathy despite beating expectations.
Advanced Micro Devices (AMD 99.42, +8.29, +9.1%), Airbnb (ABNB 156.18, +11.18, +7.7%), Starbucks (SBUX 81.64, +7.31, +9.8%), Moderna (MRNA 155.05, +8.51, +5.8%), and Paycom Software (PAYC 328.20, +39.74, +13.8%), however, were some of the earnings standouts.
Separately, WTI crude futures rose 5.2%, or $5.29, to $107.97/bbl amid news that the European Commission proposed to phase out Russian crude imports in the next six months and refined oil products by year-end.
Reviewing Wednesday's economic data:
- The ISM Non-Manufacturing Index for March decreased to 57.1% (consensus 58.7%) from 58.3% in March. The dividing line between expansion and contraction is 50.0%. The April reading marks the 23rd straight month of growth for the services sector.
- The key takeaway from the report is that business activity for the non-manufacturing sector slowed in April with many respondents noting pricing pressures, supply chain issues, and labor supply constraints as impediments for stronger growth.
- The trade deficit widened to a record $109.8 billion in March (consensus -$97.5 billion) from a downwardly revised $89.8 billion (from $89.2 billion) in February. Exports were $241.7 billion, $12.9 billion more than February exports. Imports were $351.5 billion, $32.9 billion more than February imports.
- The key takeaway from the report is that it underscores the strong demand seen in the U.S., as well as some possible inventory stuffing, but it also goes to show that demand abroad is less robust as more than half of the export increase was driven by energy supplies.
- The ADP Employment Change report estimated that 247,000 jobs were added to private sector payrolls in April (consensus 390,000). The increase in March was upwardly revised to 479,000 from 455,000.
- The final IHS Markit Services PMI for April increased to 55.6 from 54.7 in the preliminary reading.
- The weekly MBA Mortgage Applications Index increased 2.5% following an 8.5% decline in the prior week.
Looking ahead, investors will receive the weekly Initial and Continuing Claims report and preliminary Productivity and Unit Labor Costs for the first quarter on Thursday.
- Dow Jones Industrial Average -6.3% YTD
- S&P 500 -9.8% YTD
- Russell 2000 -13.2% YTD
- Nasdaq Composite -17.1% YTD