- US stocks soared on Wednesday after the Federal Reserve raised interest rates by 75 basis points.
- Stocks extended their gains after Fed Chairman Jerome Powell hinted at a dovish pause in rate hikes.
- Stocks were also boosted by better-than-feared earnings results from mega-cap tech companies like Alphabet and Microsoft.
US stocks soared on Wednesday, with the Nasdaq up more than 4% after the Federal Reserve moved forward with another 75-basis-point interest rate hike, putting the effective Fed Funds Rate at a range of 2.25% to 2.50%.
The gains extended higher after Chairman Jerome Powell said during a press conference that the Fed would be data dependent on the decision for its next rate hike, hinting that the Fed could be in pause mode if economic data significantly worsens between today and the next meeting in September.
"Another unusually large [interest rate] increase will depend on the data," Powell said. He reiterated his view that the US is currently not in a recession amid the strong labor market, but he did acknowledge a recent slowdown seen in consumer spending.
Here's where US indexes stood at the 4:00 p.m. ET close on Wednesday:
- S&P 500: 4,023.59, up 2.62%
- Dow Jones Industrial Average: 32,197.59, up 1.37% (436.05 points)
- Nasdaq Composite: 12,032.42, up 4.06%
"The scenario investors can hope for is best illustrated during the mid 1990s. The economy escaped recession as the Fed pivoted from increasing rates to cutting rates when labor markets weakened," LPL economist Jeffrey Roach said, adding that he sees upwards of 100 basis points in interest rate increases between now and the end of the year.
Better-than-feared earnings results from mega-cap tech companies Microsoft and Alphabet also helped boost investor sentiment and stock prices. Their results showed resilience in the cloud and advertising markets despite a highly uncertain macro period. Both stocks traded up more than 7% in Wednesday trades.
While missing revenue and profit estimates, Microsoft offered strong guidance that included double-digit revenue and income growth for its upcoming fiscal year. "MSFT bullish guidance for FY23 will be heard around the world and Street. Rock of Gibraltar in an economic storm," Wedbush analyst Dan Ives said.
Alphabet's earnings also missed analysts' revenue and profit estimates, but the results showed that its digital ad business is "not falling off a cliff and relatively stable," Ives said, essentially calming fears sparked last week by Snap's warning on the digital advertising market.
Investors are now shifting their earnings focus towards Meta Platforms, Amazon, and Apple, all of which are expected to report results after the market close today (Meta) and on Thursday (Apple, Amazon).
Meanwhile, Russia's war against Ukraine continues to have an outsized impact on Europe, as it struggles with rising gas prices and shortages. On Wednesday, European power prices jumped to a record high as Russia slashed the supply of natural gas to the continent.
West Texas Intermediate crude oil rose 3.5% to $98.36 per barrel. Brent crude, oil's international benchmark, climbed 3% to $107.48.
Bitcoin jumped 9% to $22,769. Ether prices surged 16.5% to $1,590.
Gold edged up 0.8% to $1,732 per ounce. The yield on the 10-year Treasury ticked up 1 basis point to 2.80%.