Stocks Rally as Fed Minutes Show Smaller Rate Hikes Ahead
3:22 pm Wednesday, November 23rd, 2022
U.S. stocks rose Wednesday, as meeting minutes from the Federal Reserve showed that the central bank is looking to hand out smaller rate hikes in the coming months as inflation cools off.
The initial upside push was supported by a positive response to earnings from Deere (DE) along with renewed interest in beaten down issues like Tesla (TSLA), which received an upgrade today to Neutral from Sell at Citigroup.
In addition to Tesla, other mega cap stocks have been an important directional driver today. The Vanguard Mega Cap Growth ETF (MGK) was up 1.0% at today’s high, but now trades up 0.1%. The decline there has coincided with the stock market falling from session highs and the Dow Jones Industrial Average dipping into negative territory. Apple (AAPL) is a top laggard in the space after reports emerged that there were protests occurring at the Foxconn manufacturing facility in China, according to Bloomberg.
Market participants also had a slew of economic data to digest today. Some reports, like October Durable Goods Orders, October New Home Sales, and the November University of Michigan Index of Consumer Sentiment, were better than expected, but others, like the Weekly Initial Claims and Preliminary November IHS Markit Manufacturing and Services PMIs, were worse than expected.
The Treasury market and dollar seemed to key off the IHS data, which showed contraction readings (i.e., sub-50) for both the manufacturing and services numbers, and the uptick in initial claims, as a reason to think the Fed might not be overly aggressive with its future rate hikes.
The 10-yr note yield, which hit 3.80% earlier, sits at 3.73% now. The 2-yr note yield, which hit 4.56% earlier, sits at 4.50% now. The U.S. Dollar Index is just off its intraday low, down 0.8% to 106.37.
Roughly half of the 11 S&P 500 sectors trade up led by consumer discretionary (+0.4%) and communication services (+0.2%). On the flip side, real estate (-0.5%) and energy (-1.9%) are the top laggards among the sectors.
Trading volume is on the lighter side, which is consistent with this holiday-shortened week.
The final reading for the November University of Michigan Index of Consumer Sentiment increased to 56.8 (consensus 55.5) from the preliminary reading of 54.7. The final reading for October was 59.9. In the same period a year ago, the index stood at 67.4.
