Market Analysis

Stocks mixed following latest Fed rate hike

U.S. stocks were mixed on Wednesday afternoon after the Federal Reserve announced its latest interest rate increase, a move which brought the Fed’s benchmark policy rate to the highest level since October 2007.

In its statement the Fed noted inflation pressures but said inflation “remains elevated” as price pressures prove persistent across the economy.

The central bank also suggested Wednesday’s rate hike will not mark the end of its campaign, saying the Fed, “anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.

The statement added futures increases, “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Following the Fed’s announcement of a 0.25% rate hike, its smallest increase in nearly a year, the S&P 500 (^GSPC) was down 0.2%, while the Dow Jones Industrial Average (^DJI) sank by 0.7%. The technology-heavy Nasdaq Composite (^IXIC) turned into green figures, rising 0.2%.

On Tuesday, stocks capped off a strong start to the year, with the S&P 500 logging its best January since 2019 while the Nasdaq 100 enjoyed its strongest January rally since 2001, gaining over 10%.

Earnings season also remains in full force, with another disappointing quarter from Snap (SNAP) out last night garnering the most investor attention.

Shares of the social media company were off more than 14% after the company told investors its internal forecasts assume revenue in its current quarter will fall between 10% and 2% from a year ago.

Match Group (MTCH) and Electronic Arts (EA) shares were also down more than 9% and 12%, respectively, on Wednesday after reporting disappointing quarters on Tuesday afternoon.

Peloton (PTON) shares were up more than 17% on Wednesday after the company reported its cash burn decreased to $94 million in its latest quarter, down from $747 million 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 the changes we’re making are working,” CEO Barry McCarthy wrote in a letter to shareholders.

Wednesday’s earnings highlight will come after the market close when Meta Platforms (META) releases its quarterly report.

On the economic data side, new data on private payroll growth from ADP showed private employers added 106,000 jobs last month, fewer than the 170,000 expected by economists.

In its report, ADP said weather impacted its measurement of the labor market, citing floods in California and snow storms in 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 reference week. Hiring was stronger during other weeks of the month, in line with the strength we saw late last year,” said ADP chief economist Nela Richardson.

Data on job openings for December out Wednesday suggested demand for workers remains robust, as 11 million jobs were available at the end of the month, up from 10.4 million at the end of November.

Elsewhere in economic data, readings on the manufacturing sector from S&P Global and the Institute for Supply Management showed activity remained depressed in the first month of 2023.

The ISM’s latest manufacturing PMI reading fell to its lowest level since May 2020, which economists see as another sign recession pressures continue to build in the U.S. economy.

Writing in a note to clients on Wednesday, Andrew Hunter, senior U.S. economist at Capital Economics, wrote that a more detailed looked at the ISM’s report suggests “domestic economic weakness is increasingly the main driver of the manufacturing sector’s woes and, overall, the ISM report reinforces our view that the US economy is close to recession.”

S&P Global’s reading showed manufacturing activity deteriorated at a slightly slower rate in January than December, but still indicates “a worryingly steep rate of decline in the health of the goods producing sector,” according to Chris Williamson, chief business economist at S&P Global Market Intelligence.

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Read More:Stocks mixed following latest Fed rate hike

2023-02-01 19:09:20

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