Stocks closed sharply higher as Federal Reserve raises interest rates

US stocks jumped higher in a volatile session and bond yields jumped to their highest level in nearly three years after the Federal Reserve officially said That would raise interest rates For the first time since 2018.

Major indexes rose at the open, pared their gains after the Fed’s announcement and then raced to end the session near their highest levels of the day.

The Standard & Poor’s 500 Index rose 95.41 points, or 2.2%, to 4,357.86. The broad gauge of the stock market rose 4.4% over the past two trading days, the largest percentage rise in two days since April 2020. The technology-focused Nasdaq Composite advanced 487.93 points, or 3.8%, to 13,436.55, its best day since November. 2020. The Dow Jones Industrial Average rose 518.76 points, or 1.5%, to 34,063.10.

The Fed raised interest rates by a quarter of a percentage point and new forecasts show that most officials expect the federal funds rate to rise to at least 1.875% by the end of the year and to about 2.75% by the end of 2023. That means a total of Seven quarter-point increases This year and more next year.

Wednesday’s Fed rate hike marks the end of a The historical wave of stimulus It was released just as the Covid-19 pandemic was first spreading across the United States. The pandemic put a pause on a years-long bull market in stocks and pushed the economy into recession. The stimulus helped the economy recover faster than many expected and pushed the stock market to new heights. Now, investors face a different challenge: inflation, which is at its highest level in 40 years. Some even Concerned about the looming recession.

“It pretty much looks like they wanted to send a message that they are fighting inflation and that they are going to fight it quickly and get it under control,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research.

The prospect of a Fed rate hike has rattled markets for several months, although investors appeared to be taking the announcement a big step. The Nasdaq Composite is now on track for its longest bear market since the financial crisis. The S&P 500 is down about 9% from its high.

The central bank is navigating an extraordinarily complex environment of a tight labor market, supply turmoil, spiraling inflation, Russia’s invasion of Ukraine And the Covid-19 lockdown in ChinaThe latter two are likely to exacerbate inflation and supply chain problems.

Bond yields rose after the announcement. The yield on the benchmark 10-year Treasury rose to 2.185%, the highest level since May 2019. Yields and prices are moving inversely. The sharp rise in bond yields reflects investors’ growing bets on Russia’s invasion of Ukraine Momentum towards higher interest rates will not slow down.

US retail sales data for February Show an increase in spending from the previous month as households adapted to the cross currents of a robust labor market, declining coronavirus cases and rising inflation The highest annual rate in 40 years.

Technology and growth stocks, which have taken a hit in recent months, did particularly well in trading on Wednesday, a move that baffled some traders. Technology and growth stocks were the most sensitive to the path of rate hikes, and some traders said they interpreted Powell’s stance on monetary policy as more aggressive than they initially expected.

Some traders said some investors aggressively dumped these positions since the beginning of the year while bond yields rose, which could set the sector up for a reversal.

“I thought it was a little bit more upbeat than anticipated,” RJ Grant, director of equity trading at KBW, said of the Fed’s announcement and press conference. But he said the positioning “was a kind of impulse in the Fed’s decision.”

The technology sector in the S&P 500 was one of the best performers, up 3.3%. Arrow

ARK Innovation ETF

It rose $5.65, or 10%, to $60.04.

nvidia

Shares jumped $15.23, or 6.6%, to $244.96.

PayPal

It added $7.46, or 7.4%, to $107.92.

Traders work on the New York Stock Exchange.


Photo:

Xinhua / Zuma Press

In the commodity market, oil prices have fallen below $100 a barrel in recent days, helping the stock market rebound. Moves in oil were muted on Wednesday as investors weighed whether shutdowns in some Chinese cities would reduce energy demand even as Russia’s invasion of Ukraine stoked fears of supply disruptions. Brent crude futures, the international benchmark, fell 1.9% to $98.02 a barrel, the third consecutive day of losses.

Higher oil prices have raised concerns that the United States and Europe may see sustained inflation and lower economic growth, as higher gas and energy prices undermine household spending on other goods and services.

The rise in technology stocks was not limited to US technology stocks Sharp recovery in Chinese markets After supportive comments from policy makers in Beijing. Hong Kong’s Hang Seng Index rose 9.1%, led by gains in technology stocks. China’s Shanghai Composite rose 3.5%.

Chinese officials said they will “coordinate epidemic prevention and control and economic development, keep the economy operating within a reasonable range, and keep the capital market running smoothly,” according to a report released Wednesday by Xinhua News Agency. This helped allay some fears of an economic slowdown in China that would also dampen growth globally.

The KraneShares CSI China Internet ETF is up 40% after hitting a record low earlier in the week, posting its biggest one-day gain since it began trading in 2013.

“The bounce in Chinese stocks shows just how sensitive the markets are,” said Peter Garnery, head of equity strategy at Saxo Bank, noting wide volatility in markets in recent weeks as investors follow the headlines on a number of events.

Offshore, the Stoxx Europe 600 continental index rose 3.1%, led by a jump in the technology sector. Stock market in Russia still closed during the rest of the week.

Joe Wallace contributed to this article.

The Fed’s main tool for managing the economy is changing the federal funds rate, which can affect not only borrowing costs for consumers but also shape broader decisions by businesses such as how many people to hire. The Wall Street Journal explains how the Fed is manipulating this one rate to steer the entire economy. Illustration: Jacob Reynolds

write to Kaitlin Ostroff at caitlin.ostroff@wsj.com

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