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By Jeffrey
Cane | Wednesday, January 26 All Systems
Go. A March liftoff in
interest rates was effectively confirmed by the Federal
Reserve today. That was expected, but how stocks
traded was a little unusual. Stocks rose early in the day. The S&P
500 was
up nearly 2% when the Federal Open Market Committee statement was released.
Stocks initially slipped and then fell sharply during Fed Chairman Jerome
Powell's news conference before
recovering some ground late in the session. The retreat is perhaps not surprising given
the wild swings in stocks we have seen this week. Yet the move may have also
reflected a slightly more hawkish tone to Powell's comments, as he said
that he thought "the inflation situation is about the same, but probably
slightly worse" since the Fed's last meeting in mid-December. He
also noted that "we're committed to using our tools to make sure that
inflation—high inflation—that we're seeing does not become entrenched." His comments lent support to a growing view
that more than four rate increases could be on the table this year. Investors may also have been responding to a
lack of details on the Fed's plans to shrink its $9 trillion balance sheet,
which, as Lisa Beilfuss wrote for Barron's today, "has doubled since the start of
the pandemic and represents nearly 40% of U.S. gross domestic product." Charlie Ripley, senior
investment strategist for Allianz Investment Management, said
today: While offering some
clarity on how the Fed would begin the process of removing policy
accommodation, the outcome of the meeting fell short in providing the needed
guidance on the timing and magnitude of the shift in policy. Perhaps this was
intentional to provide more optionality for a more uncertain economic outlook,
but time will not be a luxury for the Fed should inflationary pressures
persist throughout this year. The S&P 500 ended the day down about
0.1%. The Dow Jones Industrial
Average fell 130 points, or 0.4%, while the Nasdaq
Composite closed higher by the slimmest of
margins. The Russell 2000 slumped 1.4%, to a new 52-week low. The Cboe
Volatility Index, or Vix, extended its
recent rise, settling at 31.96. Among the bright spots in the market today
was Corning (up 11.2%), whose earnings topped estimates
and whose
outlook wowed Wall Street. Another earnings winner was Microsoft
(up 2.9%), which reported
strong quarterly results late yesterday. emiconductor
stocks did well, with Broadcom up 4.3% and Nvida up 2%. After the market close, however,
Intel slipped 2.4% in after-hours trading as it gave a
mixed outlook for its first quarter. Mattel rose 4.3% after it won back
the license to Walt Disney's princess
lineup. Disney fell 2.2%. Oil prices continue to be a beneficiary of the fears
over a Russian invasion of Ukraine. Crude futures surged 2% today,
to $87.35 a barrel, their highest price since October 2014. The Treasury
curve flattened. The yield on the two-year note
rose to 1.089%, while the yield on the 10-year rose to 1.845%. The U.S.
dollar was again stronger against other major
currencies, while Bitcoin was slightly lower, trading this afternoon
at $36,371. Despite Powell's concerns over inflation
running high, the inflation hedge gold fell 1.2%, to $1,829.90 an ounce. The FOMC next meets on March 15-16. The shortage of everything is forcing companies to
rethink supply chains and how they get things done. Hear from Intel, Honeywell
International, and Invesco on the business and economic consequences.
Sign up for a live
Barron's Roundtable event on Monday at noon Eastern time. |
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DJIA: -0.38% to 34,168.09 The Hot Stock: Corning +11.2% Best Sector: Technology +0.6% |
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