Following the Federal Reserve’s decision to step up its effort to combat rising inflation by raising its main interest rate by three-quarters of a point on Wednesday, stocks on Wall Street are finishing decisively higher.
The benchmark short-term rate has reached its highest level since 2018 thanks to the Fed’s most recent increase.
The Dow Jones Industrial Average closed 1.4 percent higher at 32,198 while the S&P 500 gained 103 points, or 2.6 percent, to close at 4,024.
The tech-heavy Nasdaq increased by 4%, marking its biggest gain in over two years. Microsoft, Alphabet, the owner of Google, and other businesses all reported strong earnings, which improved investor sentiment.
The Federal Reserve increased its key interest rate by a widely anticipated three-quarters of a point on Wednesday as the central bank intensifies its fight against surging inflation.
Stocks on Wall Street were sharply higher in afternoon trading.
With this move, the Fed has raised its benchmark short-term rate to its highest level since 2018.
This is the second consecutive three-quarter point increase.
The decision by the central bank comes as annual inflation has accelerated to 9.1 percent, the highest rate in 41 years.
A 75-basis point increase was unquestionably necessary given the inflationary trend in June, according to Charlie Ripley, senior investment strategist at Allianz Investment Management.
However, the direction of policy as we move forward from here is now more uncertain due to recent economic data.
Markets were rattled Monday when retail behemoth Walmart warned that rising food and gas prices, which are driving consumers to spend less on more lucrative discretionary products like clothing, are hurting its profitability.
The retailer’s unusual profit warning in the middle of the quarter caused concern about how the entire retail industry is being impacted by the highest inflation in 40 years.
While this is happening, some sectors of the economy, particularly the housing sector, are already slowing down as a result of the Fed raising rates.
Because of this year’s steep increase in mortgage rates, sales of previously inhabited homes in the United States decreased in June for the fifth consecutive month.
The 10-year Treasury yield, which affects the cost of mortgages, has increased due to expectations of higher average interest rates.
According to Thomas Costerg of Pictet Wealth Management, “the main risk at this stage is actually an inflation “overkill” with too abrupt monetary tightening, unnecessarily driving up the unemployment rate.”
Most economic indicators and decreased commodity prices, according to Costerg, already lead to slower inflation in the future.
the first-ever decline in meta posts
Investors paid close attention to the most recent round of corporate earnings reports on Wednesday, which featured strong results from Alphabet, the company that owns Google, and Microsoft.
Following the release of their most recent quarterly reports, shares of Microsoft and Alphabet, the parent company of Google, increased 6.7% and 7.9%, respectively.
Despite the aerospace company reporting it delivered more planes in the first quarter than it had since the pandemic began, Boeing shares fell by 0.1 percent.
The parent company of Facebook and Instagram, Meta, reported its first revenue decline in company history on Thursday due to a decline in ad spending as the economy deteriorates and as rival TikTok’s competition grows.
Stocks in the technology and communication sectors contributed significantly to the S&P 500’s gains. Nvidia increased by 7.3%, and Netflix increased by 5.1%.
Market growth was also aided by retailers, restaurant chains, and other businesses that depend on direct consumer spending.
Following the restaurant chain’s release of second-quarter profits that above analysts’ expectations, Chipotle Mexican Grill saw a 14.9 percent increase.
After the music streaming service revealed monthly active user and premium subscriber numbers that above the Street’s expectations, Spotify Technology soared 12.7 percent.
After the closing bell, Ford Motor Company and Facebook’s parent company Meta Platforms will release their quarterly earnings to investors.