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Stocks rally as Federal Reserve keeps interest rates unchanged, providing optimism for the rest of the year
After a challenging few months, the stock market made a comeback on Wednesday following the Federal Reserve’s decision to maintain its current interest rate. Investors interpreted this decision as an indication that the central bank would refrain from further rate changes for the remainder of the year.
The Dow Jones Industrial Average surged by 243 points, or 0.7%, while the S&P 500 and the Nasdaq Composite rose by approximately 1% and 1.3%, respectively.
One sector that stood out in particular was information technology, with stocks gaining over 1%. Advanced Micro Devices and Micron Technology, two prominent semiconductor companies, saw their shares increase by 9% and 3% respectively. Nvidia also experienced a 3% rise.
As widely anticipated, the Federal Reserve decided to keep interest rates within the range of 5.25% to 5.5%. In addition, the central bank reported that economic activity expanded strongly in the third quarter, following their previous assessment of solid growth. Damanick Dantes, portfolio strategist at Global X, stated that the recent surge in yields makes it less likely for the Fed to raise rates in December.
Nonetheless, Fed Chair Jerome Powell expressed that a rate hike in December was not out of the question, countering the notion that it would be difficult to increase rates after a two-meeting pause.
Following the rate decision and the announcement of Treasury bond sales, bond yields declined, which boosted the equity market. The 10-year Treasury yield fell just below 4.8%, while the 2-year Treasury yield dipped below 5%.
Treasury sale plans and economic data
Earlier in the session, the Treasury provided details on the size of future bond sales, addressing concerns about the rising U.S. government debt. Wall Street’s expectation of $112 billion in debt auctions next week was largely met.
Investors also analyzed economic data that revealed signs of cooling in the economy and labor market. The ISM manufacturing index, for instance, indicated a greater-than-expected contraction in manufacturing activity during October.
The stock market endured a challenging October, largely driven by concerns over escalating yields. Both the Dow and the S&P 500 ended the month with losses of 1.4% and 2.2% respectively, marking the first three-month losing streak for both indexes since March 2020. The S&P 500 briefly entered correction territory. The Nasdaq Composite also experienced a decline of 2.8% in October, marking its third consecutive monthly loss.
Last month, the 10-year U.S. Treasury yield reached a 16-year high, surpassing the significant 5% level, raising fears that the Fed would maintain higher interest rates for a longer duration.
— CNBC’s Jeff Cox contributed to this report.
