Stocks ended sharply higher Wednesday afternoon as investors mulled the Federal Reserve’s final monetary policy decision of 2021, which came against a backdrop of persistent inflationary pressures.
The S&P 500 and Dow turned positive after spending much of the trading day earlier in the red. The Nasdaq outperformed to add more than 2%. Bond yields rose, and the benchmark 10-year Treasury yield added more than 3 basis points to rise rise above 1.47% immediately following the Fed’s 2 p.m. monetary policy decision.
All eyes on Wednesday were on the Federal Reserve’s monetary policy statement. In this, the Fed announced it was speeding the withdrawal of its crisis-era stimulus programs. The Fed ramped up the rate of tapering of its asset purchasing program to $30 billion per month.
Previously, the Fed’s asset purchasing program took place at a rate of $120 billion per month in combined Treasuries and agency mortgage-backed securities from the start of the pandemic through November. Last month, the Fed began dialing back these purchases by $15 billion, and announced another $15 billion reduction for December.
The Federal Reserve’s updated Summary of Economic Projections, or so-called “dot plot,” also showed the likelihood of several interest rate hikes next year. The updated projections showed the median member of the Federal Open Market Committee expected three rate hikes in 2022, followed by as many as four hikes in 2023 and as many as two in 2024. This charted out a quicker cadence of rate hikes than projected in the Fed’s September dot plot.
The firming economic recovery and soaring inflation has given the central bank room for a more hawkish tilt to policy. Last week’s Consumer Price Index showed the fastest surge in U.S. consumer prices since 1982 on a year-over-year basis in November. And on Tuesday, the U.S. Producer Price Index jumped by the most on record at a 9.6% year-over-year increase for last month.
The Federal Reserve’s latest statement suggested officials were taking note of the rising prices.
“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation,” according to the statement.
A number of strategists noted the trading activity in recent sessions and weeks reflected the market already pricing in a more hawkish Fed. Software and other growth names were some of the biggest laggards in the major indexes during Tuesday’s session, and the Nasdaq dropped more than 1% during the trading day.
“When you have an anticipation of higher interest rates, growth stocks or long-duration growth stocks certainly get hit the hardest,” Art Hogan, national chief market strategist, told Yahoo Finance Live on Tuesday. “When you do that net present value calculation with a higher interest rate, that implied multiple or ascribed multiple to growth names comes in. So a lot of that’s been priced in. When you think about some of those real growth-y names and momentum names and risk assets, they’ve seen a lot of carnage.”
“What the market is trying to tell us here is that when you set your asset allocation plan for next year, you want to have a barbell approach with growth on one side — you want to have those growth names that are actually valued at a multiple to earnings, not a multiple to revenues or a multiple to cash flows or a multiple to sales,” he added. “We anticipate 2022 is going to be very much like 2021, where you really want to have a balance between growth and value.”
Supply and demand
4:03 p.m. ET: Tech stocks lead indexes higher following Fed decision: S&P 500 gains 1.6%, Dow adds 383 points, or 1.1%
Here were the main moves in markets as of 4:03 p.m. ET:
- S&P 500 (^GSPC): +75.77 (+1.64%) to 4,709.86
- Dow (^DJI): +383.38 (+1.08%) to 35,927.56
- Nasdaq (^IXIC): +327.94 (+2.15%) to 15,565.58
- Crude (CL=F): +$0.86 (+1.22%) to $71.59 a barrel
- Gold (GC=F): +$7.10 (+0.40%) to $1,779.40 per ounce
- 10-year Treasury (^TNX): +2.5 bps to yield 1.4630%
2:13 p.m. ET: Stocks trade higher as investors consider Fed decision
Here’s a snapshot of how markets were trading Wednesday afternoon following the Federal Reserve’s latest monetary policy statement and projection materials.
- S&P 500 (^GSPC): +21.61 (+0.47%) to 4,655.70
- Dow (^DJI): +142.76 (+0.4%) to 35,686.94
- Nasdaq (^IXIC): +58.47 (+0.38%) to 15,295.27
- Crude (CL=F): -$0.25 (-0.35%) to $70.48 a barrel
- Gold (GC=F): -$10.00 (-0.56%) to $1,762.30 per ounce
- 10-year Treasury (^TNX): +2.3 bps to yield 1.462%
11:51 a.m. ET: Pfizer shares set record high as company awaits COVID-19 pill authorization
Shares of Pfizer (PFE) jumped to a fresh record intraday high on Wednesday amid optimism over the company’s COVID-19 pill, called Paxlovid. President Joe Biden said Tuesday that the White House had ordered enough of the antiviral pills to treat 10 million Americans, and that he was “encouraged by the promising data” that the drug-maker released on the pill. Pfizer’s data showed earlier this week that the drug decreased the risk of hospitalization or death by 89% for high-risk adults.
Pfizer’s stock was up more than 3% to trade above $57 per share Wednesday afternoon, and paced toward a fifth straight day of gains. The stock has risen 56% for the year-to-date.
11:10 a.m. ET: Amazon Web Services sees connectivity issues, impacting Twitch, other platforms
Amazon’s web hosting platform Amazon Web Services (AWS) experienced connectivity issues Wednesday morning, triggering outages at platforms from Zoom Video Communications to Amazon-owned Twitch and other online services.
As of 10:42 a.m. ET, more than 20,000 outages were reported on DownDetector. Amazon Web Services said on its status page Wednesday that it was still investigating connection issues in Northern California and Oregon as of late morning Eastern Time.
9:30 a.m. ET: Stocks open flat
Here’s where markets were trading as of 9:30 a.m. ET:
- S&P 500 (^GSPC): +4.04 (+0.09%) to 4,638.13
- Dow (^DJI): +1.87 (+0.01%) to 35,546.05
- Nasdaq (^IXIC): -5.75 (-0.04%) to 15,919.00
- Crude (CL=F): -$0.54 (-0.76%) to $70.19 a barrel
- Gold (GC=F): -$1.60 (-0.09%) to $1,770.70 per ounce
- 10-year Treasury (^TNX): +3.8 bps to yield 1.467%
8:30 a.m. ET: Retail sales rose 0.3% in November, missing estimates
U.S. retail sales rose at a slower-than-expected rate in November after a jump in October, as electronics and department store retailers’ sales especially dropped during the month.
Retail sales were up 0.3% in November compared to October, the Commerce Department said on Wednesday. This came in below the 0.8% monthly increase consensus economists were expecting, according to Bloomberg-compiled data. In October, retail sales rose 1.8%, which was upwardly revised from the 1.7% increase previously expected.
By category, department stores saw one of the biggest sales drops during the month with a decline of 5.4%. General merchandise store sales more broadly declined 1.2%. Electronics and appliance store sales fell by 4.6%, and health and personal care store sales were down 0.6%.
“I see this more as a sign that Americans started their holiday shopping early, as opposed to bad news for retailers,” Ted Rossman, senior industry analyst at CreditCards.com, wrote in an email Wednesday morning. He noted that on a year-over-year basis, retail sales were still up 18.2%.
“That year-over-year comparison is more significant, and it illustrates robust expansion,” he added.
7:26 a.m. ET Wednesday: Stock futures drift
Here’s where markets were trading ahead of the opening bell on Wednesday:
- S&P 500 futures (ES=F): +0.25 points (+0.01%), to 4,637.25
- Dow futures (YM=F): +12 points (+0.03%), to 35,564.00
- Nasdaq futures (NQ=F): -11.5 points (-0.07%) to 15,913.25
- Crude (CL=F): -$0.87 (-1.23%) to $69.86 a barrel
- Gold (GC=F): -$2.00 (-0.11%) to $1,770.30 per ounce
- 10-year Treasury (^TNX): +0.9 bps to yield 1.448%
6:24 p.m. ET Tuesday: Stock futures edge up ahead of Fed decision
Here were the main moves in markets as the overnight session kicked off on Tuesday: