Tech stocks rose on Wednesday following the latest Federal Reserve interest rate hike after Federal Reserve Chairman Jerome Powell suggested signs of “disinflation” were brewing in the economy.
As the closing bell rang on Wall Street, the tech-heavy Nasdaq Composite Index (^IXIC) rose 2%, leading the charge for markets following Powell’s comments.
The S&P 500 (^GSPC) closed up 1%, while the Dow Jones Industrial Average (^DJI) rose 0.03%, or just 8 points. The Dow was hit by energy stocks, which remained under pressure on Wednesday, as the price of WTI crude fell 3% to around $76.50 a barrel.
On Wednesday afternoon, the Federal Reserve announced its latest interest rate hike, a move that pushed the Fed’s benchmark policy rate to the highest level since October 2007. The Fed’s move marked its smallest increase in almost a year.
In its statement, the Fed noted that inflationary pressures are easing, but said inflation “remains elevated” as price pressures persist throughout the economy. But at his news conference, Powell said that “for the first time” the Fed could say that “the disinflation process has begun.”
Investors took Powell’s comments as a sign that the Fed may be closer to pausing its current rate-hike campaign. Investors see a pause in interest rate hikes as a positive sign for riskier assets like tech stocks, as Yahoo Finance’s Julie Hyman detailed earlier this week.
Wednesday’s rally was marked by Peloton (PTON), whose shares rose 26% on Wednesday morning news that the company reduced its cash burn to $94 million in its most recent quarter, from $747 million. dollars from nine months ago. On an adjusted basis, the company reported $8 million in free cash flow during the holiday quarter.
“If you’ve been wondering whether or not Peloton can make an epic comeback, this quarter’s results show that the changes we’re making are working,” CEO Barry McCarthy wrote in a letter to shareholders.
Peloton, a pandemic darling, joined Cathie Wood’s flagship ARK Innovation ETF (ARKK), which was up 4% on Wednesday, to enjoy a Federal Reserve-induced rise.
These gains continued the market action that has dominated this year, as stocks capped off a strong start to the year on Tuesday, with the S&P 500 posting its best January since 2019, while the Nasdaq 100 enjoyed its biggest January rally since 2001, earning more than 10%
However, with earnings season in full swing, the news was not all good on Wednesday, with another disappointing quarter for Snap (SNAP) on Tuesday night drawing the most attention from investors.
Shares of the social media company fell 10% after the company told investors its internal forecasts assume revenue in its current quarter will fall 10% to 2% from a year earlier.
Shares of Match Group (MTCH) and Electronic Arts (EA) also fell 5% and 9%, respectively, on Wednesday after reporting disappointing quarters on Tuesday afternoon.
On the economic data side, new data on private payroll growth from ADP showed that private employers added 106,000 jobs last month, less than the 170,000 expected by economists.
In its report, ADP said weather affected its measure of the labor market, citing flooding in California and snowstorms in the central and eastern parts of the country during the reference week.
“In January, we saw the impact of weather-related disruptions on employment during our baseline week. Hiring was stronger during other weeks of the month, in line with the strength we saw late last year,” the company said. ADP Chief Economist Nela Richardson.
Data on job openings for December released on Wednesday suggested that demand for workers remains strong, with 11 million jobs available at the end of the month, up from 10.4 million at the end of November.
Elsewhere in economic data, readings for the manufacturing sector from S&P Global and the Institute for Supply Management showed activity remained subdued in the first month of 2023.
The latest ISM manufacturing PMI reading fell to its lowest level since May 2020, which economists see as another sign that recessionary pressures continue to mount in the US economy.
In a note to clients on Wednesday, Andrew Hunter, senior US economist at Capital Economics, wrote that a closer look at the ISM report suggests that “domestic economic weakness is increasingly the main driver of troubles.” of the manufacturing sector and, in general, the ISM The report reinforces our view that the US economy is close to recession”.
The S&P Global reading showed that manufacturing activity deteriorated at a slightly slower pace in January than in December, but still signaled “a worryingly steep rate of decline in the health of the goods-producing sector,” according to Chris Williamson, chief economist. business of S&P Global Market Intelligence. .
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