Easing Worries About Possible Rate Hike May Generate Buying Interest
02 Maio 2024 - 10:06AM
IH Market News
The major U.S. index futures are currently pointing to a notably
higher open on Thursday, with stocks likely to move to the upside
as traders continue to digest yesterday’s Federal Reserve
announcement.
The upward momentum on Wall Street comes amid easing concerns
the Fed’s next monetary policy move could actually be an interest
rate hike rather than a cut, which Fed Chair Jerome Powell called
“unlikely” in his post-meeting press conference.
“A market concern coming into [yesterday’s] FOMC meeting was
that the Fed might shift gears to a more hawkish tone, including
potential rate hikes, based on recently hotter CPI readings,” said
Larry Tentarelli, Chief Technical Strategist, Blue Chip Daily Trend
Report.
“Powell seemed to push back on the idea of rate hikes,” he
added. “His early commentary today was that the FOMC believes that
current rates are restrictive and are weighing on demand. Powell
also stated that the Fed believes that ‘policy stance is
appropriate to the current situation.’”
The Fed’s next monetary policy meeting is scheduled for June
11-12, with the central bank likely to leave rates unchanged once
again.
After turning in a lackluster performance for much of the
session, stocks saw substantial volatility following the Federal
Reserve’s monetary policy announcement Wednesday afternoon. The
major averages initially surged in reaction to the Fed announcement
but pulled back going into the close.
The major averages eventually finished the day mixed. While the
Dow rose 87.37 points or 0.2 percent to 37,903.29, the Nasdaq fell
52.34 points or 0.3 percent to 15,605.48 and the S&P 500 dipped
17.30 points or 0.3 percent to 5,018.39.
The late-day volatility came after the Federal Reserve announced
its widely expected decision to leave interest rates unchanged.
Citing a lack of further progress toward its 2 percent inflation
objective in recent months, the Fed said it decided to maintain the
target range for the federal funds rate at 5.25 to 5.50 percent
Members of the Fed also reiterated they need “greater
confidence” inflation is moving sustainably toward 2 percent before
they consider cutting interest rates.
Meanwhile, the Fed said it would continue reducing its holdings
of Treasury securities and agency debt and agency mortgage-backed
securities but revealed plans to slow the pace of decline.
The central bank said would slow the pace of decline of its
securities holdings by reducing the monthly redemption cap on
Treasury securities from $60 billion to $25 billion.
The monthly redemption cap on agency debt and agency
mortgage-backed securities will be maintained at $35 billion, and
the Fed will reinvest any principal payments in excess of this cap
into Treasury securities.
“In continuation with the wait-and-see policy that has been in
place, Chairman Powell is buying some time by diverting attention
of this meeting towards the Fed’s balance sheet and focusing on
reducing the runoff pace of their Treasury holdings,” said Charlie
Ripley, Senior Investment Strategist for Allianz Investment
Management.
He added, “Ultimately, today’s policy decision was a
well-rounded approach to give the Fed more time to gain confidence
in the path of inflation, but we suspect they remain ready to cut
knowing that the interest rate curve has remained inverted for the
longest period on record.”
On the economic data front, payroll processor ADP released a
report showing private sector employment increased by more than
expected in the month of April.
ADP said private sector employment shot up by 192,000 jobs in
April after jumping by an upwardly revised 208,000 jobs in
March.
Economists had expected private sector employment to climb by
175,000 jobs compared to the addition of 184,000 jobs originally
reported for the previous month.
Meanwhile, the Institute for Supply Management released a
separate report showing a modest contraction by U.S. manufacturing
activity in the month of April.
The ISM said its manufacturing PMI slipped to 49.2 in April from
50.3 in March, with a reading below 50 indicating contraction.
Economists had expected the index to edge down to 50.0.
The slight pullback by the index came after it indicated a
modest expansion in March following sixteen consecutive months of
contraction.
Semiconductor stocks showed a substantial move to the downside
on the day, resulting in a 3.5 percent nosedive by the Philadelphia
Semiconductor Index.
Advanced Micro Devices (NASDAQ:AMD) led the sector lower,
plunging by 9.0 percent despite reporting slightly better than
expected first quarter results. Traders may have been disappointed
AMD provided second quarter sales guidance in line with analyst
estimates.
Significant weakness was also visible among computer hardware
stocks, as reflected by the 2.0 percent slump by the NYSE Arca
Computer Hardware Index.
Shares of Super Micro Computer (NASDAQ:SMCI) plummeted by 14.0
percent after the high efficiency server maker reported weaker than
expected fiscal third quarter revenues.
Energy stocks also saw considerable weakness amid a steep drop
by the price of crude oil, while biotechnology, utilities and
telecom stocks showed strong moves to the upside.
Advanced Micro Devices (NASDAQ:AMD)
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