Markets: News  

By Isabel Wang and Frances Yue

U.S. stocks finished higher on Wednesday, reversing earlier losses after the Federal Reserveraised its policy interest rate by 25 basis points, as widely expected, while signaling a only a few more might be needed in its inflation fight.

The Nasdaq Composite finished at the highest level since mid-September, while the Dow industrials and the S&P 500 both scored their biggest intraday recovery from session lows since Oct. 13, according to Dow Jones Market Data.

How stock indexes traded?

On Tuesday, the Dow industrials climbed 368.95 points, or 1.1%, to end at 34,086.04, the S&P 500 gained 58.83 points, or 1.5%, to finish at 4,076.60, and the Nasdaq Composite gained 190.74 points, or 1.7%, ending at 11,584.55.

What drove markets?

U.S. stock indexes closed higher, reversing the Dow industrials earlier slide by more than 500 points, after the central bank increased its benchmark interest rate by 25 basis points to a range of 4.5% to 4.75%, while signaling that potentially only a "couple more hikes" were likely to achieve an "approximately restrictive stance."

The stock market bounced off session lows to turn higher after Fed Chair Jerome Powell said in his press conference following the decision that financial conditions had tightened significantly over the past year. He also acknowledged for the first time that "the disinflationary process has started."

See: Fed lifts interest rates again but sees only a 'couple more hikes' in fight against inflation

Vincent Reinhart, chief economist and macro strategist at Dreyfus and Mellon, said investors didn't get a hawkish Powell, but a cautious Fed boss who didn't push back on markets.

"[Powell said] they've got their inflation forecast and market participants had their inflation forecast," Reinhart told MarketWatch via phone. "I think the big difference is market participants expected a bigger protest from Powell, a bigger pushback about financial conditions. [But] he was cautious and just said it's a difference of opinion."

"He maintained the view [that] the risk of doing too much is less than the risk of doing too little."

See:Why Fed vs. markets showdown leaves Powell at disadvantage

In U.S. economic data on Wednesday, the ISM, or Institute for Supply Management said its January manufacturing sector activity index fell to 47.4% in January from 48.4% in the prior month. A reading below 50% signal the manufacturing sector is contracting.

U.S. job openings rose to 11 million in December from 10.4 million. The number of U.S. workers quitting in December dipped to 4.09 million from 4.1 million in the prior month.

ADP said the private sector added 106,000 jobs in January. It is a significant drop from the revised 253,000 jobs added in December. Economists forecasted an increase of 190,000.

Apart from the Fed outcome, investors will get two more big central bank decisions this week, from the European Central Bank and Bank of England, both expected to hike another 50 basis points on Thursday. Fresh data showed eurozone inflation for January coming in lower than expected on Wednesday, at a rise of 8.5%, the lowest since May.

In corporate earnings reporting, shares of Snap Inc. (SNAP) finished 10.3% lower on Wednesday after the social-media group posted a disappointing quarterly revenue and offered no guidance. Peloton Interactive Inc. (PTON) shares ended 26% higher after the company posted a $335.4 million loss for its latest quarter. Still, it indicated improvement from the connected-fitness company's cash-burning peaks.

Meta (META) is expected to report its third consecutive quarterly sales decline when it issues results after the close on Wednesday.

Read:Tech stocks just had their best January in decades -- here's why that may not be a good sign

Companies in focus

-- Barbara Kollmeyer contributed to this report.

-Isabel Wang

(END) Dow Jones Newswires

February 01, 2023 17:03 ET (22:03 GMT)

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