Wall Street ended sharply higher on Wednesday, July 27, hailing the U.S. central bank’s (Fed) determination to curb inflation after its three-quarter percentage point rate hike, in line with market expectations.
Given the final results at the close, the Dow Jones stock market index climbed 1.37% to 32,197.59 points, the technology-heavy Nasdaq jumped 4.06% to 12,032.42 points and the S&P 500, the most representative of the U.S. market, posted a 2.62% increase to 4,023.61 points. The indices had already started the session in the green.
The markets had anticipated the decision of the Fed, which applied a new severe hike (0.75 percentage point) to the overnight rates, the second in a row of this magnitude, making them rise in a range of 2.25% to 2.50% to counteract inflation at the highest in 40 years (9.1%).
The FED and its monetary committee indicated that another “unusually high” hike might be necessary at the next monetary meeting in September. But, Fed Chairman Jerome Powell said during a press conference, “at some point, it will be appropriate to slow” the rate hike, a nuance that pleased the markets.
“There were no surprises; the Fed remained aggressive,” commented Peter Cardillo of Spartan Capital. “They kept saying inflation was too high.” “But what pleased the market,” the analyst continued, “was that Mr. Powell said they may slow the pace of hikes in the future, which does not rule out a 50 basis point hike” soon.
They feel the same way, Art Hogan of B. Riley Wealth Management, noted that the market was “now considering a less aggressive monetary policy as we move from the third to the fourth quarter.” Calculations based on CME Group’s futures contracts were now betting 66% on a hike of only half a point in September.
On the expected market, the first estimate of the US GDP for the second quarter on Thursday, 28 July, Mr. Powell assured that the United States was “not in recession” for the moment and that a soft landing of the economy, without too much damage to the labour market, was still possible.
On the bond market, yields on 10-year Treasury bonds fell to 2.77% from 2.80% the previous day. The dollar fell against the major currencies (-0.68% for the dollar index at 20:30 GMT), and the euro rose. The eleven sectors of the S&P were largely in the green, starting with communication services (+5.11%) and information technology (+4.29%).
In after-hours trading, however, Meta (Facebook), which ended up on a 6.55% jump to USD 169.58, was down 1.65% after announcing a drop in its profit and a decline in sales for the first time in its history.
The second quarter profit margin shrank 36% to USD 6.7 billion, suffering from competition from TikTok and advertiser cutbacks due to poor economic conditions. But other Nasdaq megacapitalizations soared, such as Google (Alphabet, +7.74%) or Amazon (+5.37%) and to a lesser extent Apple (+3.42%), which is due to reveal its results on Thursday, 28 July.
Several large groups in the semiconductor sector have also been on the rise, such as AMD (+5.36%) or Nvidia (+7.60%). They benefited from the adoption in the Senate of a bill that provides USD 52 billion to boost chip production, a text that the House of Representatives must still ratify. Dow Jones heavyweight Boeing closed slightly higher (+0.11%) after lower-than-expected second-quarter results.
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