Dow Jumps 400 Points After Fed Hikes Rates By 75 Basis Points

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The stock market jumped on Wednesday after the Federal Reserve raised interest rates by 75 basis points for the second consecutive month in a row, with Fed Chair Jerome Powell hinting that the central bank could slow the pace of rate hikes later this year.

Key Facts

Stocks surged after the Fed’s announcement: The Dow Jones Industrial Average rose 1.4%, over 400 points, while the S&P 500 gained 2.6% and the tech-heavy Nasdaq Composite 4.1%.

In a widely expected move, the Federal Reserve once again raised interest rates by 75 basis points, similar to its last meeting in June, in a bid to combat high inflation which has hurt economic growth.

While Fed Chair Powell hinted that the central bank could slow the pace of rate increases later this year—if economic data improves, he also said that another 75 basis point increase is still on the table for September.

Shares of tech giants Microsoft and Alphabet both gained despite quarterly earnings and revenue coming in below expectations late on Tuesday, with analysts remaining optimistic about the long-term growth outlook for both companies.

Investors continued to assess the latest batch of second-quarter earnings: Out of more than 150 companies in the S&P 500 that have reported so far, roughly 70% have beaten analyst expectations, according to FactSet data.

Retail stocks, which tanked on Tuesday following a gloomy profit warning from Walmart, rebounded slightly on Wednesday, with the SPDR S&P Retail ETF, which tracks the sector, gaining nearly 1%.

What To Watch For:

Markets were widely anticipating another 75-basis-point rate increase from the Federal Reserve. The central bank hiked rates by the same amount at its meeting last month—the biggest rate hike in 28 years—in an attempt to combat high inflation. The Fed has said it is prepared to get even more aggressive in tightening monetary policy, last month warning that there is a “significant risk” that high consumer prices could become “entrenched” for longer. Investors will also be watching upcoming U.S. economic data, with second-quarter GDP due on Thursday. Despite negative growth in the first quarter, analysts still expect GDP to rise slightly, which would mean the U.S. economy avoids a technical recession.

Crucial Quote:

There weren’t a “ton of fireworks” from the Fed meeting, as a 75-basis-point hike was “widely expected” and is somewhat of a “nonevent,” says Vital Knowledge founder Adam Crisafulli. Amid signs that inflation could soon moderate, “the Fed is getting very close to a dovish pivot,” he predicts, though it won’t happen until later this year until economic data starts to improve.

Surprising Fact:

“One of the primary reasons stocks have put up miserable performance numbers this year stems from the tighter monetary policy of the Federal Reserve . . . for that reason, we found it ironic that on all three days the FOMC has hiked rates this year, stocks rallied,” according to Bespoke Investment Group. “The S&P 500 is down 17.7% this year, but if you had only invested in the market on days when the FOMC hiked rates, you would be looking at a YTD gain of 6.8% in just three days.”

Further Reading:

Fed Raises Interest Rates By 75 Basis Points Again As Investors Brace For Recession (Forbes)

S&P 500 Falls Over 1% After Walmart’s Profit Warning, Consumer Confidence Tumbles (Forbes)

IMF Warns Of ‘Gloomy Outlook’ For Global Economy, Slashing Growth Estimates (Forbes)

New China Covid-19 Lockdowns Would Threaten U.S. Economic Recovery (Just Ask Tesla) (Forbes)

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