Wall Street rebounds after the Federal Reserve meeting, with all major stock indices in positive territory. This is supported by strong corporate earnings and the market’s continued expectation of interest rate cuts by the Federal Reserve.
Speculators are preparing to challenge Fed Chair Jerome Powell, who stated that a rate cut in March is unlikely and more confidence is needed to determine if inflation will reach the Fed’s target of 2%.
According to fed futures prices, the chances of a rate cut in the March meeting are at 41%, while the chances of no change are at 59%. However, speculators are increasing their bets for rate cuts starting in May and continuing through December 2024.
Data shows that initial jobless claims have increased for two consecutive weeks, reaching their highest level in two months. There has also been a deceleration in labor costs and a surge in job cuts. However, survey data on manufacturing activity indicates better-than-expected conditions in January.
During the day, the S&P 500 and Nasdaq 100 both showed gains of 0.8%, while blue chips and small caps had slightly smaller gains at 0.6%.
The regional banking sector is facing challenges following the poor results of New York Community Bancorp. Analysts are now examining individual banks’ exposure to troubled real estate loans, particularly commercial properties and offices. The SPDR S&P Regional Banking ETF is experiencing a decline of over 4%, its worst performance in a two-day period since March 2023.
Treasury yields are down across all major maturities, with the 10-year yield dropping 7 basis points to 3.85%. This comes after a previous increase to a 4% yield. The iShares 20+ Year Treasury Bond ETF is up 1.6%.
The market’s expectation of lower interest rates and uncertainties in the banking sector have increased interest in gold. The precious metal has rallied 1.2%, its strongest day since December 2023, and is on track for its fourth straight positive session.
In terms of major indices and ETFs, the S&P 500, Nasdaq 100, Russell 2000, and the Dow Jones all showed positive gains. The Consumer Staples and Materials Select Sector Funds outperformed, while the Energy and Financials Select Sector Funds had weaker performance. Gold miners rallied, while the SPDR S&P Regional Banking ETF experienced losses.
In terms of specific stocks, Qualcomm Inc. fell over 4% despite reporting better-than-expected results. This was due to concerns about the company’s sales in China. Other companies, such as MetLife Inc., Corteva Inc., Merck & Company Inc., Honeywell International Inc., Peloton Interactive Inc., and UGI Corp., reacted to earnings reports with varied performance.
Goldman Sachs has revised its timeline for a Fed rate cut following Powell’s statements.