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U.S. stocks were higher on Thursday, with the Federal Reserve still very much in the spotlight as traders digested the central bank’s hawkish dot plot against chair Jerome Powell’s more moderate comments.
The Fed on Wednesday held interest rates steady for the first time after ten consecutive rate increases, while also signaling that at least two more hikes were on the cards.
After ending mixed in the previous session, Wall Street’s major averages opened higher today and have stayed in positive territory. The tech-heavy Nasdaq Composite (COMP.IND) was up 0.54% to 13,699.78 points in morning trade, while the benchmark S&P 500 (SP500) added 0.72% to 4,403.88 points. The blue-chip Dow (DJI) advanced 1.05% to 34,335.41 points.
All 11 S&P sectors were trading in the green, with the exception of Real Estate. Energy and Health Care topped the leaderboard.
Treasury yields were lower. The longer-end 10-year yield (US10Y) was down 5 basis points to 3.75% while the 2-year yield (US2Y) – which is more rate-sensitive to the Fed’s moves – was down 3 basis point to 4.68%. Meanwhile, the dollar index (DXY) was lower by 0.61% to 102.32.
The overall signal from the Fed was somewhat conflicting. While the central bank did hold rates steady, its Summary of Economic Projections showed an increase in expectations this year for gross domestic product growth, core PCE inflation and the peak federal funds rate.
Powell in his post-decision press conference appeared to downplay those projections, saying that they could change as more economic data comes in. He also said that no rate decision had been made for the July meeting, which will be a live one.
“Chair Powell laid out the reasons for not raising rates at this meeting, describing a shift to slower speed and indicated that the FOMC had bought itself the ability to not raise rates and look around at this week’s meeting. Although he did not say a decision had been taken about when the next hike might be, he did say the July meeting would be a ‘live meeting,’ which we view as a strong hint that the FOMC is eyeing raising rates at their next meeting,” UBS’ Jonathan Pingle said.
JPMorgan’s Michael Feroli also weighed in: “while the Committee unanimously voted to leave rates unchanged, a large majority of FOMC participants anticipate at least two more rate hikes this year, and only two see the current setting as the appropriate terminal rate. So why not just go ahead and hike today? Chair Powell said it was a continuation of the process of slowing down the speed of hikes.”
“He tried not to tip his hand on July but given how many on his committee are inclined to hike multiple times this year, it may be hard to get them to pause for more than one meeting. As such, we now look for one more 25bp hike at the July meeting,” Feroli added.
Another central bank was in focus on Thursday – the European Central Bank, which hiked its key interest rates by 25 basis points as inflation remains too high.
Turning to the economic calendar, it was quite busy. The number of Americans filing for weekly jobless claims came in at 262K, above the expected figure of 250K. The data continued to point towards cracks in what has been a highly resilient labor market.
Elsewhere, May retail sales figures came in on solid ground, rising +0.3% M/M compared to the forecasted -0.1% level. Retail stocks saw modest gains on the report.
Additionally, the Philadelphia Fed’s gauge of business outlook came in at -13.7 in June versus the consensus -13.5 number, while the New York Empire State manufacturing index unexpectedly rose. Finally, import, export prices declined in May. May import prices slipped 0.6%, compared with -0.6% consensus and +0.3% in April. Export prices declined 1.9% against the 0.0% expected level and -0.1% prior reading.
Looking at active stocks, Domino’s Pizza (DPZ) was the top percentage gainer on the S&P 500 (SP500) on a rating upgrade.
