Stock market reactions on Fed interest rate announcement and press conference days are often dramatic, but yesterday was one of the most astounding of all time, as a Dow decline of 505 points at 2:30pm reversed into a rally up to a 248 advance at 3:40pm before finally easing back to end with a nominal closing advance of 7 up to 34,093. It was held back by an earnings-related decline in AMGN, in addition to selling in TRV, CAT and CVX on a weak day in energy stocks, while CRM, HD and MSFT helped the upside.
The S&P, as usual on dramatic days like this, sank to a 39 point decline after the Fed 2pm policy announcement but then turned on the upside engines and reached an astounding 72 point advance at 3:40pm before also easing back to a closing gain of 42 up to 4119.
Is this normal for the Dow to gain 753 points in one hour and ten minutes or for the S&P to rise by 111 points in the same period of time, but this is what happens when there are all kinds of algorithmic trades and option panics in both directions at work.
And the Nasdaq once again continued to do the best of all with a closing advance of 231 up to 11,816 led by what turned out to be gains by many of the large technology leaders who have really been in the forefront of the market being higher this year, such as AMZN, TSLA and now the new darling META which lost 75% of its value from the September 2011 high to last October’s low and is now the new love affair of investors with a huge gain for today’s opening after its report last night.
The Russell 2000 Index of small stocks came along for the upside ride with a 29 point advance up to 1960 while the VIX collapsed to new lows not seen since late 2021 at 17.87.
As expected, the rate increase was 25 basis points up to a range of 4.5 – 4.75%, the smallest one since last March.
The reason for the collapse to session lows as mentioned above was the statement in the announcement that “ongoing increases” in interest rates will be needed to bring inflation down to the Fed’s target level and added that it was still way too early to declare victory over inflation.
Apparently what then got the market so turned on to the upside was his comment at the 2:30pm press conference that “We can now say, I think for the first time, that the disinflationary process has started.” That got investors thinking about a future with no more rate increases.
Adding to this optimism was an additional statement that “My base case is that the economy can return to 2% inflation without a really significant downturn or really big increase in unemployment” but also added that he did not foresee any rate cuts this year.
On the other hand, one does not want to see a repeat of the 1970’s where inflation reignited after the Federal Reserve let up on interest rates too soon.
One area influencing expectations for the Fed is the job market, which has remained resilient. While strength there helps workers, a worry is that it could lead to too-high gains in wages that give inflation more fuel. This idea was re-enforced by the December JOLTS job openings report which showed an increase up to 11 million.
The two-year yield fell to 4.11% from 4.21% late Tuesday while the 10-year Note declined to 3.42% from 3.51% late Tuesday.
There are a huge number of earnings reports this week and the lineup is as follows: yesterday – JNPR, SNAP, EA, WDC, MTCH and Dow component AMGN lower while AMD, PTON,TMUS, ODLF were higher; today – META, ALGN, ELF, BMY, CAH, HOG, HSY, WWE higher while Dow components HON and MRK plus COP, LLY, EL, DGX, CHRW, QRVO are lower; tonight – AAPL, BABA, F, RACE, QCOM, SBUX, BABA, GOOS, GILD, GPRO, MSTR, NWSA, SIRI.
Economic reports will have: yesterday – December JOLTS job openings rose to 11 million, ADP jobs estimate is only 106K but they have a history of being way off, ISM January Manufacturing Survey came in lower at 47.4; today – weekly jobless claims slipped by 3K to 183K, 4Q unit labor costs were up by 1.15, 4Q productivity gained by 3%, December factory orders, final December durable goods orders; Friday – January non-farms payroll report for which the estimate is 185, 000, unemployment rate, average hourly earnings, monthly revisions, labor force participation rate.
Donald M. Selkin
Chief Market Strategist
Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.