Stocks definitely finished Wednesday better than they started, clawing back losses triggered by the Russia-Ukraine conflict after the Fed released its latest minutes.
The selloff started in the morning on signs that Russia is increasing its military presence in Ukraine—not withdrawing troops as senior officials had claimed. But the Fed came to the rescue in the afternoon, flagging that it is willing to consider faster interest-rate increases to curb hot inflation.
Dow Jones Industrial Average
closed down 55 points or 0.2%, after the index rallied 422 points Tuesday. The
advanced 0.1%, and the
dropped 0.1%. The indexes gained just after the Fed minutes came out after having been trading deeply in the red earlier in the day.
The Fed’s minutes, released at 2 p.m. Eastern time, didn’t do much to change the perception that the Fed could hike rates by 50 basis points in March. They did, however, signal a change in the timeline. They also revealed something else relating to tighter monetary policy. The minutes said that “significant reduction in the size of the balance sheet would likely be appropriate.”
The minutes signal that the Fed could being selling bonds. That could significantly pressure the price of long-dated Treasury bonds, which would cause their yields to rise. Higher long-dated bond yields make future profits less valuable, which drags stock valuations lower. The 10-year Treasury yield remained steady at just over 2%.
But largely, “There was no new information in the minutes from the FOMC meeting of three weeks ago,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The bond market has already priced in a bunch of rate hikes.”
The market liked what the Fed said—or didn’t say. With the S&P 500 still down more than 6% from its all-time high hit in early January, markets were already anticipating the worst from the Fed—that the central bank will raise interest rates by 50 basis points, rather than 25 to stave of high inflation. Seeing that the Fed didn’t offer any news worse than that, the market was pleasantly surprised.
“Markets seemingly expected a more explicit hawkish signal (e.g., there was no explicit discussion of hiking more than 25bp at a meeting),” wrote Citigroup economist Andrew Hollenhorst. “The S&P 500 erased a nearly 1% loss.”
Indeed, the average stock was gaining. Some large market capitalization stocks were performing underwhelmingly, dragging the indexes down. But the Invesco S&P 500 Equal Weight Exchange-Traded Fund (RSP), which weights each stocks in the index equally and therefore shows the movement of the average stock, rose 0.3%.
Earlier, word of the buildup came from the secretary-general of the North Atlantic Treaty Organization. On Tuesday, after Russian officials talked about a pullback, the major indexes rallied more than 1% .
For the U.S., the main fear right now is that a Russian invasion would lead to sanctions on Russian oil and restrict the global supply of the commodity. Sanctions would cause oil prices to spike, and consumers would pay even higher prices for gas. On Wednesday, the price of WTI crude oil initially gained before dropping 1.2% to just under $91 a barrel; the gain in the past month is just over 9%.
“After yesterday’s huge relief rally based on the news that Russia was withdrawing troops from the Ukraine border, we are back to uncertainty regarding Putin’s next move,” wrote Louis Navellier, founder of Navellier & Associates.
Also on Wednesday, January retail sales rose 3.8% month-over-month, beating estimates of 2% and rising above the 2.5% decline seen in the previous result.
fell 0.1%, under pressure from geopolitical worries and U.K. consumer-price index data showing January experienced the highest rate of annual inflation in 30 years. Hong Kong’s
Hang Seng Index
ended the day 1.5% higher.
Here are six stocks on the move Wednesday:
Roblox (ticker: RBLX) fell 26% after the videogame platform reported record daily active users but disclosed a wider-than-expected net loss.
Ericsson (ERIC) was down 12% after the Swedish telecommunications group said that an internal review had uncovered compliance concerns linked to corruption-related misconduct and money laundering. An investigation identified payments to intermediaries and the use of nonstandard transport routes in Iraq when ISIS (now known as Islamic State) and other terror groups were in control of swaths of the country.
ViacomCBS (VIAC) fell 18% after reporting earnings late Tuesday. The media group had a solid quarter of streaming-subscriber gains, but it came at the cost of spending on content and marketing that depressed fourth-quarter profit.
After a nearly 32% jump Tuesday,
Virgin Galactic (SPCE) was down 6.4% after the company said that ticket sales for space flights will open to the general public Wednesday.
Upstart Holdings (UPST) stock gained 36% after the company reported a profit of 89 cents a share, beating estimates of 51 cents a share, on sales of $304.8 million, above expectations for $262.9 million. The company also announced a $400 million share buyback program.
Masimo (MASI) stock dropped 37% after Stifel analysts cut their price target to $250 from $318.