NEW YORK: Wall Street stocks closed higher on Wednesday (Jan 4), snapping a brief losing streak as markets shrugged off messaging from the Federal Reserve’s (Fed) most recent meeting that stressed its commitment to lowering inflation.
Fed policymakers do not expect it will be “appropriate” to start cutting interest rates this year, generally believing a restrictive stance is needed until there are clear signs that consumer prices are coming down, minutes from the December meeting showed.
The Dow Jones Industrial Average rose 133.4 points, or 0.4%, to 33,269.77; the S&P 500 gained 28.83 points, or 0.75%, to 3,852.97; and the Nasdaq Composite added 71.78 points, or 0.69%, to 10,458.76.
The movements came on the back of survey data showing that US manufacturing activity remained in contraction for a second straight month, a sign that earlier Fed rate increases may be biting.
Faced with decades-high inflation, the Fed raised interest rates seven times last year in hopes of cooling the world's biggest economy.
While interest-sensitive sectors are reeling, job openings data also released on Wednesday continued showing minimal signs of labor market weakness.
But the job openings and labour turnover reports are often subject to revisions, and “openings are clearly trending down”, noted Mickey Levy of Berenberg Capital Markets.
“(They) are likely to fall more rapidly as economic conditions deteriorate in 2023,” he said.
As they digest the figures, investors appear to be awaiting further data, including a key employment report due on Friday (Jan 6), for more clues on the policy direction to come.
While some money managers said the minutes should have held little surprise, traders appeared taken aback by the Fed’s continued vow to keep fighting inflation until it is convinced it's been tamed.
“The market is like a kid asking for ice cream. The parents say ‘no,‘ but the market keeps asking because the parents have caved in the past,” said Burns McKinney, portfolio manager at NFJ Investment Group LLC in Dallas. “The market still thinks it’s going to get ice cream, just not as soon as they thought before.”
He pointed to the minutes for evidence of Fed officials’ concern that an unwarranted easing of financial conditions would complicate their efforts to fight inflation.
“The Fed minutes are a good reminder for investors to expect rates to remain high throughout all of 2023. Amid a persistently strong job market, it makes sense that fighting inflation remains the name of the game for the Fed,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office here.
“Bottom line is that, even though we flipped the calendar, the market headwinds from last year remain.”
Market participants now see a 68.8% chance of a 25 basis points rate hike from the Fed in February, but still see rates peaking just below 5% by June. – AFP, Reuters