New York stocks rebound for second day ahead of FOMC… Dow closed 0.20%↑▶ Click here for a larger view
Stocks rose for the second day in a row ahead of the results of the Federal Open Market Committee (FOMC) meeting scheduled for the following day.
At the New York Stock Exchange (NYSE) on the 3rd (Eastern Time), the Dow Jones Industrial Average closed at 33,128.79, up 67.29 points (0.20%) from the previous day.
The Standard & Poor’s (S&P) 500 index rose 20.10 points (0.48%) to 4,175.48, and the Nasdaq index, centered on technology stocks, closed at 12,563.76, up 27.74 points (0.22%) from the battlefield.
The stock price rose for two days in a row due to a buying trend following the exaggerated fall, but there is still a lot of intra-day volatility.
Investors paid attention to the results of the Federal Open Market Committee’s (FOMC) regular meeting the next day, interest rates on US Treasuries, and earnings announcements by companies.
The Fed is expected to raise the key interest rate by 50 basis points (=0.5 percentage points) at the FOMC regular meeting in May. If the Fed raises the benchmark interest rate by 50 basis points, it will be the first time since 2000.
The Fed is also expected to announce a quantitative tightening (QT) plan to shrink its balance sheet. The Fed recently hinted at absorbing up to $95 billion a month of maturing bonds in a non-reinvested way. This is much faster than the quantitative tightening carried out in 2017-2019.
With the QT announcement at this meeting, it is noteworthy whether it will be implemented immediately from May. It is also of interest to the market whether Fed Chairman Jerome Powell will give hints on the extent of further rate hikes at the June meeting.
The interest rate futures market already sees a more than 90% chance that the Fed will raise rates by 75 basis points at its June meeting. The last time the Fed raised rates by 75 basis points was in November 1994.
The 10-year Treasury bond yield broke through 3% during the day on the 2nd, and once once more exceeded 3% on the same day.
Ahead of the FOMC, interest rates are under upward pressure on concerns over intensive tightening by the Fed. In particular, it is interpreted as reflecting concerns that the Fed, which has been purchasing government bonds, will quickly exit the market through QT.
German 10-year government bond yield also exceeded 1% for the first time since 2015, raising concerns regarding global tightening.
The job announcements for March released on the same day broke a record high, suggesting that companies are having a hard time finding jobs.
According to the U.S. Department of Labor’s Recruitment and Relocation Report, there were 11,549,000 job postings in March, the highest number since December 2000.
The number of voluntary retirees stood at 4.54 million, an increase of 152,000 from the previous month. It is interpreted that this is because workers are actively moving in search of a better employment environment following the COVID-19 pandemic.
Orders for factory materials in March were $557.3 billion, up 2.2% from the previous month. This was higher than the 1.0% increase expected by experts compiled by the Wall Street Journal (WSJ).
Although companies’ quarterly earnings are generally better than market expectations, supply chain problems have not been resolved and the economic outlook is deteriorating, which is insufficient to allay investor concerns.
Pfizer shares closed 1.9% higher as the company’s earnings beat market expectations.
Estee Lauder’s share price fell more than 5% as the company’s quarterly sales were below expectations and it revised down its sales growth and adjusted earnings per share (EPS) forecasts for this year.
DuPont shares rose 0.7% on news that the company’s quarterly sales and net profit were better-than-expected.
On this day, following the market close, the results of Airbnb, AMD, Lyft, and Starbucks will be announced.
Only consumer staples and consumer discretionary stocks in the S&P 500 fell, while all other nine sectors rose. Energy, finance, real estate, and materials (materials)-related stocks rose more than 1%, leading the rise.
New York stock market analysts said the financial environment was already constrained, saying the Fed’s tightening expectations were largely reflected in prices.
Brent Schutt, chief investment officer at Northwestern Mutual Wealth Management, told MarketWatch that “there is a tug-of-war between those who think the Fed will tighten so hard that it will hurt the economy and those who don’t have to tighten as much as the market reflects this year.” said
“The financial environment has already become much more constrained as prices reflect the Fed’s massive tightening this year,” he said.
Quill Intelligence chief executive Dimartino Booth told Barron’s: “As markets are already pricing a 50bps rate hike at the May meeting, how many 50bps the Fed will raise rates for the rest of the year (following the meeting) “The interest will immediately shift depending on whether you do it or not,” he said.
According to the Chicago Mercantile Exchange (CME) FedWatch, there is a 99.8% chance that the Fed will raise the key rate by 50 basis points at its May meeting in the Federal Funds (FF) interest rate futures market.
The probability of a 75bp rate hike at the June meeting was 95.6%, up from 90.8% the day before.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) recorded 29.25, down 3.09 points (9.55%) from the previous field.
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