With optimism after the Fed's decision, the technological ones propelled Wall Street to close with gains
Facebook parent company Meta soared more than 25% after a positive earnings report
The silhouette of a broker stands listed on the New York Stock Exchange. (AP Photo/Seth Wenig)
Wall Street closed higher, buoyed by excitement around tech stocks and the rise of Meta Platforms, parent of Facebook.
The S&P 500 sit rose 1.5% on Thursday, a day after reaching its highest level since August. The Nasdaq Composite Index rose 3.3%, led by a 23.3% rise in Meta. The Dow lagged (down 0.1%) as it places less emphasis on technology.
Other tech giants report results after the close, among them Apple, Amazon and the parent company of Google. Stocks have already risen on hopes that the Federal Reserve will pause raising interest rates soon.
Meta helped lead gains after its revenue last quarter came in better than analysts expected and it said it expects to spend less this year than previously forecast. Although its latest profit fell short of expectations, Facebook parent also announced a program to buy back $40 billion of its shares.
Stocks had already risen earlier this year on hopes that the Federal Reserve would soon pause its interest rate hikes. These increases help fight inflation, but they also hurt the economy and investment prices.
A day earlier, stocks and bonds soared after Fed Chairman Jerome Powell, said the central bank is finally starting to see progress in its battle against inflation. Markets took this as a sign that a pause might be imminent, with investors even increasing bets on rate cuts later this year. Rate cuts act as steroids for markets, squeezing prices and providing support to the economy.
Equity specialists on the Stock Exchange New York stocks listen to Federal Reserve Chairman Jerome Powell (AP Photo/Seth Wenig)
And that's despite Powell saying Wednesday that a couple more rate hikes will likely be necessary for inflation to reach the Federal Reserve's target. He also said that he did not foresee any rate cuts in 2023and recommitted to “stay the course until the job is done” to beat inflation.
According to Ella Hoxha, senior investment manager from Pictet Asset Management, “the market is saying that the Federal Reserve can have its cake and eat it too: inflation down and growth not going off the cliff so far.”
According to her, the market seems to give a 75% chance that the Federal Reserve will achieve a “soft landing” for the economy, in which inflation can come down from its highs without the economy going into a painful recession. “We would say at best 50%, or even less,” Hoxha said.
According to Hoxha, there is still a risk that the Federal Reserve will have to be tougher on interest rates than markets expect if the US labor market remains tight. That makes him wonder, with stock and bond prices rising so sharply around the world.
“It sounds like the market wants to pick pennies against a steamroller,” he said.
Thursday's rally spilled over to the other side of the Atlantic, where markets rallied after central banks in Europe and the UK also raised rates in its efforts to squash inflation.
FILE PHOTO: Traders work on the New York Stock Exchange (REUTERS/Andrew Kelly)
The European Central Bank raised its official interest rate by 0.50 percentage points and said it would raise another next month. The Bank of England also raised its interest rate by half a percentage point, saying there are signs that inflation has turned, but also stressing that it is too early to declare victory over inflation.
European stocks rose, and the German DAX rose 2.2%. London's FTSE 100 rose 0.8%.
Movements in Asia were more modest, with Hong Kong's Hang Seng down 0.5% and London's Nikkei 225. Japan rising 0.2%.
The next big thing for Wall Street will be earnings reports from big tech companies due after the close of trading on Thursday, including Apple, Amazon and the Google's parent company, Alphabet. Each of them rose more than 3%.
These will be followed by the employment report on Friday, in which economists expect to see a slowdown in hiring. The job market has largely resisted rapid rate hikes by the Federal Reserve over the past year.
Big tech companies have recently announced big layoffs, but a report published on Thursday suggests that the job cuts are not as widespread. Last week fewer workers applied for unemployment benefits than expected, and the number fell to its lowest level since April.
Yields on Treasury bonds continued to decline on Thursday, an indication of expectations for a more accommodating Federal Reserve. The 10-year Treasury yield, which helps set interest rates on mortgages and other major loans, fell to 3.39% from 3.42% on Wednesday. The two-year yield, which moves more in line with Federal Reserve expectations, fell to 4.08% from 4.10%.
(With information from AP)