Stocks are up a day after Fed signaled cut could start “soon,” predicts future interest rate hike
U.S. Equity Futures were trading higher a day after the Fed signaled that a cut could begin “soon” as well as projecting an interest rate hike in 2022.
The US central bank has indicated that it could start raising its benchmark interest rate sometime next year, sooner than it expected three months ago. He also said he would likely start to slow the pace of his monthly bond purchases “soon” if the economy continues to improve. The Fed bought bonds throughout the pandemic to help keep long-term interest rates low.
Markets were also reassured after Evergrande, one of China’s largest private real estate developers, announced it would make a payment due on Thursday. This has likely allayed some concerns about heavily indebted Chinese real estate developers and the potential ripple effects of possible defaults.
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On Wall Street, the S&P 500 rose 1%, breaking a four-day losing streak. The benchmark initially climbed 1.4% after the Fed released its statement at 2 p.m. EST.
The other major indexes also rose, but lost some of their gains late in the afternoon. The Dow Jones Industrial Average rose 1% to 34,258.32. The blue chip index briefly rose 520 points. The Nasdaq composite gained 1% to 14,896.85.
Bond yields mostly increased. The yield on the 10-year Treasury bill fluctuated after the Fed’s announcement, but held steady at 1.31%. Yield influences interest rates on mortgages and other consumer loans.
The Fed’s policy update was in line with market expectations, analysts said. The VIX, a measure of volatility investors expect for the S&P 500, fell about 14% after the Fed’s statement.
“It was telegraphed so well that it didn’t take anyone by surprise,” said Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management.
In a press conference, Federal Reserve Chairman Jerome Powell said the Fed plans to announce as early as November that it will start cutting its monthly bond purchases, if the labor market continues to improve. constant.
The Fed’s shift has revealed that inflation is starting to be a concern, said Gene Goldman, chief investment officer at Cetera Financial Group.
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“Our concern is that the Fed continues to stick to its view that this is a transitional phase, but we see no evidence that this is transitional,” he said.
Goldman added that the broader market could see a correction as economic growth slows and inflation persists. “Our concerns about the economy and the market in general are number one, we are at the peak of everything,” he said.
September was a difficult month for stocks. The S&P 500 is down 2.8%.
In addition to concerns about possible Fed policy changes, investors are nervous about the increase in COVID-19 cases due to the highly contagious delta variant and the impact of rising inflation on businesses and consumers.
History does not offer a great guide to how the markets will react to the Fed’s easing of support for the economy, mainly because it has been such a rare event.
In the summer of 2013, Treasury yields rose sharply after the Fed chairman hinted that it might start slowing down its bond buying program. Surprised investors assumed rate hikes would follow quickly as well, pushing the 10-year Treasury yield to 3%, from less than 2.20% in three months.
But after the Fed announced in December that it would cut back on buying, the 10-year rate did an about-face, falling even as the Fed slashed support for a program to keep rates low.
Despite the turmoil in the bond markets, stock prices have remained relatively stable.
This time around, the 10-year rate has been relatively stable between 1.20% and 1.30% since July, after declining 1.70% in March. Powell has repeatedly emphasized how the Fed will gradually shift from cutting its bond purchases to raising interest rates.
More than 80% of stocks in the S&P 500 Index rose on Wednesday, mainly thanks to tech stocks, banks and companies that rely on direct consumer spending. Energy stocks posted strong gains as the price of US crude oil rose 2.4%. The values of communication and public services have fallen.
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Small stocks outperformed the market at large. The Russell 2000 Index rose 1.5% to 2,218.56.
Netflix climbed 3.1% after the streaming entertainment service acquired the works of Roald Dahl, the late British author of famous children’s books such as “Charlie and the Chocolate Factory”.
Facebook fell 4% after the social network told advertisers in a blog post that it underestimated web conversions by users of Apple mobile devices by around 15% following changes to the system Apple’s operating system.
FedEx fell 9.1%, the biggest drop among S&P 500 stocks, after reporting significantly higher costs even as shipping demand increased. Many industries face higher costs due to a mix of labor and supply chain issues.
Meanwhile, Asian stocks were mostly higher on Thursday.
Shares rose in Hong Kong, Shanghai, Australia and Taiwan, but fell in South Korea and Malaysia. US futures were higher. Markets were closed in Tokyo.
In Hong Kong, the Hang Seng index gained 2% to 24,745.96. The Shanghai Composite Index rose 0.6% to 3,651.27. The Australian S & P / ASX 200 jumped 1% to 7,368.40. South Korea’s Kospi fell 0.7% to 3,117.99.
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In other trading Thursday, benchmark US crude oil fell 7 cents to $ 72.16 a barrel in electronic trading on the New York Mercantile Exchange. It gained $ 1.74 to $ 72.23 a barrel on Wednesday.
Brent crude, the international standard, fell 8 cents to $ 75.31 a barrel.
The US dollar rose from 109.76 yen to 109.86 Japanese yen. The euro slipped to $ 1.1688 from 1.1691.
AP Business Writers Alex Veiga, Stan Choe and Damian J. Troise contributed.