Stocks rise on Wall Street after another Fed rate and profit hike

Stocks on Wall Street are solidly higher in afternoon trading on Wednesday after the Federal Reserve raised its key interest rate by a widely expected three-quarters of a point as the central bank steps up its campaign to stifle the surge in inflation.

The Fed’s decision, its second straight three-quarter point hike, raises its benchmark short-term rate to the highest level since 2018.

The S&P 500 rose 1.5%, little change from where it was just before the Fed’s 2 p.m. ET release of the policy statement. The benchmark’s latest gains more than offset yesterday’s losses. The Dow Jones Industrial Average rose 0.4% and the tech-heavy Nasdaq Composite rose 2.6%.

Smaller company stocks also gained ground, pushing the Russell 2000 up one percent.

Bond returns were mixed. The two-year Treasury yield, which tends to move with Fed expectations, rose to 3.08% from 3.06% on Tuesday night. The 10-year yield, which influences mortgage rates, fell from 2.79% to 2.77%.

Wall Street correctly predicted the size of the hike, which is triple the usual size and the Fed’s fourth rate hike this year.

Such increases make borrowing more expensive, which slows the economy. The hope is that the Fed and other central banks can deftly find the middle ground where the economy slows enough to whip inflation but not enough to cause a recession.

The central bank’s decision comes as inflation accelerated to 9.1%, the fastest annual pace in 41 years.

The move could mean less pressure on stocks, especially tech stocks and others seen as relatively expensive.

Technology and communications services stocks were a big part of S&P 500 gains. Nvidia rose 5.4% and Netflix added 4%.

Stocks have been choppy this week after solid gains last week, mainly fueled by better-than-expected corporate earnings reports.

However, inflation remains at the forefront of investors’ concerns. Markets were spooked on Monday after retail giant Walmart warned that its profits were hurt by rising food and gas prices, which are forcing shoppers to cut more profitable discretionary items such as clothes.

The retailer’s mid-quarter profit warning was rare and raised concerns about how the highest inflation in 40 years is affecting the entire retail sector.

Investors kept an eye on the latest batch of corporate earnings reports on Wednesday, including strong earnings from the owner of Google, Alphabet and Microsoft.

Shares of Microsoft and Google’s parent company Alphabet rose 5.1% and 6.8%, respectively, after their latest quarterly reports. Boeing shares fell 0.8% despite the aerospace company saying it delivered more planes in the first quarter than it has since the start of the pandemic.

Retailers, restaurant chains, and other businesses that rely on direct consumer spending have also helped boost the market. Chipotle Mexican Grill jumped 12.7% after the restaurant chain reported second-quarter earnings that beat analysts’ forecasts.

Spotify tech jumped 11.5% after the music streaming service reported monthly active user and premium subscriber numbers that exceeded high street expectations.

Investors will receive quarterly results from Ford Motor Co. as well as Meta Platforms, Facebook’s parent company, after the closing bell.

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