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Market Snapshot: Dow, S&P 500 snap 5-day skid after biggest Fed interest rate hike since 1994

U.S. stocks were choppy, but modestly higher, as investors reacted to the Federal Reserve delivering its largest interest rate hike since 1994.

What’s happening

The Dow Jones Industrial Average
DJIA,
+0.82%

was up 157 points, or 0.5%, at 30,508, after rising 397 points at its session high.

The S&P 500
SPX,
+1.25%

was up 32 points, or 0.9%, at 3,768.

The Nasdaq Composite
COMP,
+2.24%

gained 181 points, or 1.7%, to trade at 11,016.

Stocks ended mostly lower on Tuesday, with the Dow and S&P 500 posting their lowest closes since early 2021 as the indexes extended their losing streak to five days. The Nasdaq Composite rose 0.2%.

What’s driving the market

The Federal Reserve pulled the trigger on a 75 basis point rate hike on Wednesday, its largest such increase in nearly 30 years, as the central bank works to quickly quell inflation that’s proven hard to tame from a four decade high.

Fed officials also said they now expect the central bank’s policy rate to aggressively climb to about 3.4% by the end of this year, while ending 2023 near 3.8%, in a statement, but also that the economy is expected to slow to a 1.7% growth rate this year.

Next up is a news conference with Chairman Jerome Powell at 2:30 p.m. ET.

Many Wall Street economists recently said they were expecting a 75 basis points hike, instead of the smaller 50 basis point move as previously telegraphed, after Friday’s hot inflation reading, including economist at Goldman Sachs and JP Morgan.

Surprisingly strong May consumer-price inflation data released last week struck a blow to those hoping that price rises had peaked. It also sparked a fresh rout for stock markets and other assets, pushing the S&P 500 index into bear-market territory, amid concerns more aggressive Fed action would drive the U.S. into a recession.

Jeff Schulze, investment strategist at ClearBridge Investments, said that since Friday’s hot inflation data, traders now expect the Fed to deliver the second-fastest start to a rate-hiking cycle since 1955, in a phone interview.

If that pans out, Powell’s first year of tightening would be eclipsed only by the 1980s rate-hiking cycle under former Fed Chairman Paul Volcker, when looking at roughly the past 70 years. Volcker often has been credited with breaking the back of inflation, by unleashing a recession.

“There’s a very strong possibility that the Fed goes too far and inadvertently causes a recession,” Schulze said.

Jake Remley, senior portfolio manager at Income Research + Management, said the Fed still has “room to run before before they push the boundaries of a recession,” in emailed comments Wednesday.

“In fact, the faster they go now, the better,” he said. ” Their ability to arrest this inflation trend and avoid a real stagflationary economy — one that could last for years — rests more on how fast they act than on how many hikes they announce at any given meeting.”

Data on Wednesday showed U.S. retail sales fell by 0.3% in May, below forecast, while sales minus autos rose 0.5%. Excluding autos and gas, sales rose 0.1%.

The S&P 500 index has lost 10.2% over the past five trading days, the worst such decline since March 2020, when the pandemic was unfolding in the U.S.

Stealing some spotlight from Fed decision day was a surprise announcement by the European Central Bank, which held an emergency meeting on Wednesday to “discuss current market conditions.”

The ECB said it would use reinvestments from its expired pandemic emergency purchase program, or PEPP, combat the widening of spreads between yields of highly indebted countries and core countries like Germany, while working to fashion a new instrument designed to fight “fragmentation” of its monetary policy efforts. Economists had widely predicted that markets would test the ECB after policy makers last week failed to concretely address fragmentation worries.

See also:Why the ECB called an emergency meeting as it wrestles with ‘fragmentation’ risk

The rare ad hoc ECB gathering, which comes just a week after the central bank’s meeting, helped drive Italian bond yields lower and rallied the euro
EURUSD,
+0.11%

and European stocks
SXXP,
+1.42%
.

Companies in focus

Apple Inc.
AAPL,
+1.54%

shares were up 0.3% after it announced Major League Soccer would be exclusively available on Apple TV starting in 2023, in a 10-year deal estimated to be worth $250 million.

Redfin Corp shares
RDFN,
-1.23%

shares were 2.7% lower after CEO Glenn Kelman said in a blog post that he’d asked 8% of the company’s employees to leave as the U.S. housing market cools.

Shares of Hertz Global Holdings Inc.
HTZ,
+5.39%

rose 5.2% after the auto rental company announced a new $2 billion stock repurchase program.

Robinhood Market
HOOD,
-2.77%

shares were 2.6% lower after an Atlantic Equities analyst lowered its rating for the retail trading brokerage to Underweight from Neutral, citing weakening market conditions.

Other assets

U.S. Treasury yields were pulling back, with that of the 10-year note BX:TMUBMUSD10Y down 5 basis points to 3.43%, after hitting a more-than-decade high.

The ICE U.S. Dollar Index
DXY,
-0.60%
,
a measure of the currency against a basket of six major rivals, was up 0.1%.

Oil futures traded lower, with the U.S. benchmark
CL.1,
-2.28%

down 1.9% to trade below $117 a barrel. Gold futures
GC00,
+1.55%

rose 0.2% to trade near $1,813 an ounce.

Bitcoin
BTCUSD,
-2.77%

saw renewed pressure, falling 8.2% to trade near $20,300.

The Stoxx Europe 600
SXXP,
+1.42%

rose 1.4%, while London’s FTSE 100
UKX,
+1.20%

advanced 1.2%.

The Shanghai Composite
SHCOMP,
+0.50%

ended 0.5% higher, while the Hang Seng Index
HSI,
+1.14%

rose 1.1% in Hong Kong and Japan’s Nikkei 225
NIK,
-1.14%

fell 1.1%.

—Barbara Kollmeyer contributed reporting

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