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Stock Market Today – 5/4: Dow Surges 930 Points As Powell Plays Down 75 Basis Point Rate Talk Following Fed Hike

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Updated at 4:02 pm EST

U.S. stocks moved sharply higher Wednesday following the Federal Reserve’s biggest single-day rate hike in more than two decades, as well as further details of its policy tightening over the coming months, as the central bank steps-up its fight against the fastest inflation since the early 1980s.

Federal Reserve Chairman Jerome Powell, however, added a dovish caveat to the central bank’s decision, suggesting that core inflation may have peaked and that a 75 basis point rate hike is not being “actively considered” by policymakers.

Interest rate traders had widely expected a 50 basis points hike from the Fed, a move that would take the benchmark Fed Funds rate to a range of 0.75% to 1%, with Powell providing further tightening rhetoric at his 2:30 pm Eastern time press conference against a backdrop of slowing growth — the U.S. economy contracted 1.4% over the first quarter — and the worst four-month start to any year for U.S. stocks since 1939.

“It’s certainly heady days when the market doesn’t blink at the most aggressive rate hike in 22 years, but keep in mind this was extremely well-telegraphed and priced in,” said Mike Loewengart, managing director for investment strategy at E*TRADE from Morgan Stanley.

“So far though, we don’t have much to go on in terms of the pace and magnitude of hikes to come,” he added. “Aside from the ongoing challenge the Fed will face in terms of acting too timidly vs. too aggressively, there’s also the issue of how much the market has already anticipated increases ahead, and whether other factors will exert a greater influence on the markets.”

The Dow Jones Industrial Average closed 932 points higher in the wake of the Fed decision and Powell’s comments, while the S&P 500 surged 125 points into the green for its biggest single-day gain in two years. The tech-focused Nasdaq gained 401 points as 2-year Treasury yields tumbled to 2.64%.  

Stocks around the world have been hit by aggressive rate signaling from global central banks over the past few months as surging oil prices, supply chain disruptions and rising employment costs boost underlying inflation pressures.

The Reverse Bank of Australia unveiled its first rate hike in more than a decade on Tuesday, while European Central Bank Executive Board Member Isabel Schnabel indicated Wednesday that rates are likely to begin rising as early as July.

Still, the Fed’s actions, as well as its plans to reduce its $8.9 trillion balance sheet — a move that will likely add upward pressure to market-based interest rates — has lifted the U.S. dollar index 7.75% so far this year, to a near 20-year high of 103.408 against its global peers, while benchmark 10-year Treasury bond yields are testing the 3% level for the first time since late 2018.

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The higher rates are also offering alternatives to stocks and other assets, including gold and cryptocurrencies, that have largely outperformed benchmarks since the 2020 pandemic.

Gold is down more than 9% from its early March highs, last trading at $1,867.50 per ounce, while bitcoin has failed to regain the $40,000 mark since late April.

On the flip side, global crude prices resumed their surge in overnight trading after the European Commission — the region’s executive branch — proposed a ban on all Russian crude imports, phased over the next six months, with a complete embargo on refined oil products put in place for the end of the year. Member states will need to agree the proposals before their put in place,

WTI crude futures for June delivery were closed $5.65 higher at $108.04 per barrel, while Brent contracts for July delivery jumped $5.44 to end at $110.41 per barrel.

In Europe, the region-wide Stoxx 600 closed 1.08% lower as investors kept risk appetite in check ahead of today’s Fed rate decision while the MSCI ex-Japan index in Asia fell 0.56% heading into the close of trading.

Moderna  (MRNA) – Get Moderna, Inc. Report shares jumped 5% after the drugmaker posted much stronger-than-expected first quarter earnings while re-affirming its full-year forecast for Covid vaccine sales.

Uber Technologies  (UBER) – Get Uber Technologies, Inc. Report were active, falling 4.2% after it posted a wider-than-expected first quarter loss, but said it doesn’t expected rising costs linked to driver retainment to hold back near-term growth for bookings or profits.

The move contrasted with the 30% collapse for its smaller rival, Lyft  (LYFT) – Get Lyft, Inc. Class A Report, which cautioned that rising costs and uneven demand would eat into its bottom line over the next three months.

CVS Health  (CVS) – Get CVS Health Corporation Report shares, meanwhile, rose 4% after it posted better-than-expected first quarter earnings, while boosting its full-year profit guidance, as Aetna continued to power gains in the group’s healthcare benefit division and retail traffic held up well despite slowing Covid testing and vaccinations. 

Starbucks  (SBUX) – Get Starbucks Corporation Report shares surged 10.33% after the world’s largest coffee chain posted stronger-than-expected first quarter sales thanks to what returning CEO Howard Schultz called “relentless” domestic demand.