US Stocks Reverse Early Gains Following Fed Policy Statement, Fed Chair Powell's Comments on Rate Hikes

Last Updated: Wednesday, January 26, 2022 4:25 PM | MT Newswires

US stocks reversed early gains upon the release of the Federal Reserve's statement on the results of its two-day policy meeting and after Fed Chair Jerome Powell's comments on raising interest rates.

The Nasdaq Composite ended near flat at 13,542.12, barely managing to keep out of negative territory thanks to gains from Microsoft (MSFT). The S&P 500 was 0.2% lower at 4,349.93 and the Dow Jones Industrial Average was down 0.4% to 34,168.09. Only technology and financials managed to post gains, with the rest of the sectors in the red on Wednesday afternoon.

The Federal Reserve hinted at increasing its benchmark lending rate "soon," pointing to rising inflation and a robust labor market. "With inflation well above 2% and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate," the central bank's Federal Open Market Committee said in a statement after its two-day meeting.

The panel left its fed funds rate at between zero and 0.25%.

While the omicron variant is likely to have a negative impact on the US economy early in 2022, the Federal Reserve will consider raising interest rates at the March 15-16 Federal Open Market Committee meeting, Fed Chair Jerome Powell said Wednesday in a press conference after the FOMC meeting.

"I would say the committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so," he said.

"Today the Fed interest rate rocket left the hangar and is headed to the launchpad with what we believe is a March liftoff scheduled - the first of at least three hikes this year. Only question may be how high it flies, how fast and how many are launched? We see 3 one-quarter hikes, but another could hit this year with 3 next and 2 in 2024," Beth Ann Bovino, US chief economist at S&P Global Ratings said.

In other economic news, new-home sales in the US accelerated to an 811,000 annual rate in December from downwardly revised 725,000 in November, and ahead of 760,000 expected in a survey compiled by Bloomberg. Home sales were still down 14% from December 2020.

Advance wholesale inventories rose by 2.1% in December, while retail inventories surged by 4.4%. An update to wholesale inventories, along with wholesale sales data, will be released on Feb. 9, while retail inventories and sales are eligible for revision on Feb. 16.

Earlier in the day, the Mortgage Bankers Association reported that mortgage applications fell by 7.1% in the week ended Jan. 21 after a 2.3% increase in the previous report, as both new home applications and refinancing activity declined on a surge in mortgage rates to a nearly two-year high.

Meanwhile, Microsoft's (MSFT) fiscal second-quarter results beat estimates, driven in part by the performance of Azure. The technology giant forecast "strong revenue growth" in the quarter currently underway amid solid customer demand for hybrid and cloud offerings.

Microsoft will grow market share as business segments achieve "durable" growth amid a "solid" software spending environment, Morgan Stanley said in a research note. Shares of the software behemoth were up 2.9%, the most on the Dow.

After F5 (FFIV) released quarterly results, RBC Capital Markets analysts said the company is facing a supply issue, and its lowered fiscal 2022 revenue growth outlook should be "transitory." Still, shares of F5 plummeted 8.4%, among the worst performers on the S&P 500.

Corning (GLW) reported growth in core earnings per share and sales in the fourth quarter, beating the market's expectations. Shares surged 11.2%, the top performer on S&P 500.

Meanwhile, the US and a handful of allies may deploy thousands more troops to Eastern European NATO countries before any potential Russian invasion of Ukraine, CNN reported, citing three US officials familiar with the discussions.

West Texas Intermediate crude oil jumped 1.1% to $86.55 a barrel. Total crude oil inventories rose by 1.1 million barrels in the week ended Jan. 21, with commercial oil inventories up 2.4 million barrels and stocks in the US Strategic Petroleum Reserve down 1.3 million barrels.

The 10-year US Treasury yield surged by 8.8 basis points at 1.87%.

Gold was down 2% to $1,818.00, silver was down 1.6% to $23.51 an ounce and copper was down 0.2% to $4.44 per pound. Among energy ETFs, the United States Oil Fund was up 1.2% to $61.70, and the United States Natural Gas Fund was up 3% to $13.98.

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