Stocks rally after Fed signals interest rate hikes are coming to an end

Stocks rose Thursday afternoon although far from their best levels today as the Federal Reserve signaled on Wednesday that its campaign to raise interest rates may be nearing completion amid concerns about stability in the global banking system.

Close to 2:20 PM ET on Thursday, the S&P 500 (^GSPC) rose 0.7%, the Dow Jones Industrial Average (^DJI) rose 0.5%, and the tech-heavy Nasdaq Composite (^IXIC) rose 1.2 %. Earlier in the session, all three major averages were up more than 1% with the Nasdaq up more than 2%.

Another major asset that moved Thursday was West Texas Intermediate crude oil, which fell about 1% to trade near $70.15 a barrel. Crude oil fell to its lowest level in nearly two years earlier this week amid concerns about global demand and a rising dollar.

The 10-year Treasury yield also came in slightly lower Thursday, falling by six basis points to trade near 3.43% after yields fell on Wednesday after the Fed’s latest economic forecast suggested a rate hike was closer to completion than previously expected. .

On Wednesday, the Fed raised its benchmark interest rate target range by 0.25% as expected, bringing the federal funds rate range to 4.75%-5%, the highest level since October 2007.

However, the Fed’s updated economic projections indicated that only one rate hike of 0.25% is likely this year, an outlook in line with what the central bank said in December but a reversal from Fed Chair Jay Powell that indicated earlier in the year. This month it is likely that rates will need to rise “higher than previously expected”.

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US Federal Reserve Chairman Jerome Powell arrives at a press conference after the Fed raised interest rates by a quarter of a percentage point following a two-day meeting of the Federal Open Market Committee (FOMC) on interest rate policy in Washington, US, in March. 22, 2023. REUTERS/Lea Melis

“The results of the March FOMC meeting were generally what we expected,” wrote economists at Bank of America led by Michael Gapin. “However, the Fed has adopted some degree of tightening in credit standards and conditions as a result of recent pressure emerging from several regional banks.”

Speaking at a press conference following the policy announcement on Wednesday, Powell said some of these tighter fiscal conditions would have “the same effect” as raising interest rates. As a result, Powell said, many Fed officials have been incorporating the banking crisis and financial market fallout into their forecasts for rate cuts throughout the current year.

“Powell stuck to the Fed’s narrative that there is still a path toward a soft landing or returning inflation to target without tipping the economy into recession,” Ryan Sweet, chief US economist at Oxford Economics, wrote in a note on Wednesday. But this path has become narrower due to the pressure on the banking system ».

Beyond the index-level reaction to the Fed’s news on Wednesday, several large indicators related to the cryptocurrency industry have been on the move after the news since Wednesday’s close.

Coinbase (COIN) stock fell 14% Thursday after the company disclosed late Wednesday that it had received a notice from Wells from the Securities and Exchange Commission, warning companies of pending action from the regulator. Coinbase shares were down 18% earlier in the session.

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Shares of Block (SQ), the payments company formerly known as Square, were also under pressure Thursday, dropping 18% after Hindenburg Research released a new report on the company alleging that up to 75% of the company’s accounts were in some form fraudulent or fraudulent accounts. seconds from existing users.

In a statement Thursday afternoon, Block called the Hindenburg report “factually inaccurate” and said he would have the Securities and Exchange Commission explore what legal action it might take against the company.

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