Stocks Fluctuate After Fed Raises Rates by 0.25%

Rich Asplund - Barchart - Wed Mar 22, 2023

What you need to know…

The afternoon, the Federal Reserve announced it will increase rates by 0.25%, bringing the federal funds rate to 4.75% - 5%, its highest levels in almost 16 years.

As a result, stock indexes are fluctuating between positive and negative territory. Currently, the S&P 500 Index ($SPX) (SPY) is up +0.13%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.51%.

The markets will also scour post-FOMC meeting comments from Fed Chair Powell, who may adopt a more cautious approach to tightening monetary policy due to the banking system's confidence crisis.

Global bond yields are mixed. The 10-year T-note yield today is down -1.5 bp at 3.599%. However, European government bond yields are higher on hawkish comments from ECB President Lagarde and an unexpected acceleration of UK consumer prices in February. The 10-year German bund is up +7.1 bp at 2.364%, and the 10-year UK gilt yield jumped to a 1-week high of 3.562%.

ECB President Lagarde said, "we do not see clear evidence that underlying inflation is trending downwards," and the ECB will take a "robust" approach that allows it to respond to inflation risks as needed but also aid financial markets if threats emerge.

UK Feb CPI unexpectedly accelerated to +10.4% y/y from +10.1% y/y in Jan, stronger than expectations of an easing to +9.9% y/y.

Overseas stock markets are higher. The Euro Stoxx 50 today is up +0.72%. China’s Shanghai Composite stock index closed up +0.31%, and Japan’s Nikkei Stock Index closed up +1.93%.

Today’s stock movers…

Concern the Fed will raise interest rates today is weighing on real estate investment trusts. Boston Properties (BXP), Digital Realty Trust (DLR), and Equinix (EQIX) are down more than -2%. Also, VICI Properties (VICI), Alexandria Real Estate Equities (ARE), Simon Property Group (SPG), and AvalonBay Communities (AVB) are down more than -1%.

Host Hotels & Resorts International (HST) is down more than -3% to lead losers in the S&P 500 after Compass Point Research & Trading LLC downgraded the stock to neutral from buy.

Invitations Homes (INVH) is down more than -2% after Mizuho Securities downgraded the stock to neutral from buy.

PDD Holdings (PDD) is down more than -3% to lead losers in the Nasdaq 100 after Bloomberg Intelligence said the action by Google to remove the PDD app from its store could stall the company’s overseas growth prospects.

Petco (WOOF) is down more than -12% after reporting Q4 net sales of $1.58 billion, below the consensus of $1.59 billion.

Nvidia (NVDA) is up more than +3% to lead gainers in the S&P 500 after the company introduced new chips and supercomputing services that will benefit artificial intelligence during its annual developer conference.

Ollie’s Bargain Outlet Holdings (OLLI) is up more than +9% after reporting Q4 comparable sales rose +3%, stronger than the consensus of +1.83% and forecast 2024 net sales of $2.04 billion-$2.06 billion, above the consensus of $2.01 billion.

Winnebago Industries (WGO) is up more than +4% after reporting Q2 adjusted EPS of $1.88, well above the consensus of $1.30.

First Republic Bank (FRC) is up more than +2% as U.S. officials discuss the possibility of government backing to encourage a deal to shore up the bank.

Microsoft (MSFT) is up more than +1% to lead gainers in the Dow Jones Industrials after the company’s GitHub unit created an app called Copilot that helps software developers write computer code.

Howmet Aerospace (HWM) is up more than +1% after Jeffries initiated coverage of the stock with a buy recommendation and a price target of $50.

Across the markets…

June 10-year T-notes (ZNM23) today are up +2 ticks, and the 10-year T-note yield is down -1.5 bp at 3.599%. Position squaring and long liquidation is limiting movement in T-note prices ahead of the FOMC’s interest rate decision later this afternoon. The markets are expecting an 80% chance that the FOMC raises the fed funds target range by 25 bp.

The dollar index (DXY00) today is down by -0.13% and posted a 5-week low. The dollar is also under pressure on speculation that the Fed may adopt a less hawkish tone during the Tue/Wed FOMC meeting. Also, strength in the British pound undercut the dollar after an unexpected increase in the UK Feb CPI pushed GBP/USD to a 6-week high. In addition, hawkish comments today from ECB President Lagarde pushed EUR/USD up to a 5-week high and weighed on the dollar.

EUR/USD (^EURUSD) today is up by +0.15% and rose to a 5-week high. Dollar weakness today is supporting moderate gains in the euro. Also, hawkish comments today from ECB President Lagarde gave EUR/USD a boost when she said the ECB would take a "robust" approach to inflation risks.

USD/JPY (^USDJPY) today is up by +0.08%. Higher T-note yields today are weighing on the yen. Also, an easing of the U.S. and European banking turmoil has reduced the safe-haven demand for the yen. In addition, central bank policy divergence weighs on the yen, with the Fed, ECB, and BOE raising interest rates while the BOJ maintains QE and record-low interest rates.

April gold (GCJ3) this morning is up +4.8 (+0.25%), and May silver (SIK23) is up +0.080 (+0.36%). Precious metals prices this morning are modestly higher. A decline in the dollar index today to a 5-week low is bullish for metals prices. Also, the recent banking turmoil has sparked fund buying of gold as gold holdings in exchange-traded funds (ETFs) rose to a 1-month high Tuesday. However, the outlook for the Fed today to raise interest rates by 25 bp limits the upside in metals prices.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.