[Image source = Reuters Yonhap News]
The three major indices on the New York Stock Exchange closed higher on the 16th when the central bank, the Federal Reserve, raised the key interest rate for the first time in three years and three months and predicted another six hikes within the year. The market, judging that the Feds tightening measures to contain inflation was based on confidence in the US economy, showed a rally ahead of the close.
On the New York Stock Exchange on the same day, the Nasdaq index, which focuses on technology stocks, finished trading at 13,436.55, up 487.93 points from the previous day. The large-cap S&P 500 index rose 95.41 points to close at 4357.86, and the blue chip-focused Dow Jones Industrial Average closed at 34,063.10, up 518.76 points.
Investors watched the Feds move to raise the benchmark interest rate by 0.25 percentage points for the first time since December 2018. The Dow index, which had fallen shortly after the rate hike decision was announced, turned up immediately after a press conference held by Fed Chairman Jerome Powell.
The Fed predicted interest rates at 1.9% by the end of the year through a dot chart showing future interest rate prospects, implying that the Fed will raise interest rates every six times this year. It also confirmed that the FOMC could start shrinking its balance sheet at the earliest in May. At a press conference, Chairman Powell repeatedly expressed concerns about inflation, but emphasized that the fundamentals of the US economy are strong and that the likelihood of a recession has not increased significantly.
Dont forget that monetary tightening means the Fed believes the fundamentals of the economy are strong, said Mike Rowengart, investment strategy executive at E-Trades. “This is a good thing in the end,” he said, adding that the market is accepting todays news well.
It is evaluated that there was no surprise shock to the market as Chairman Powells austerity remarks remained at the initially expected level. Charlie Ripley, senior market strategist at Allianz Investments, said the market now needs to become more hawkish, saying the Fed must take aggressive measures, including not only raising interest rates but also shrinking its balance sheet, as inflation continues to be high.
Bank stocks, which are expected to increase profitability due to the effect of interest rate hikes, were strong. JP Morgan jumped more than 3% compared to the battlefield. Bank of America also rose 2.5%. Micron Technology rose more than 4%. Starbucks jumped more than 3% after JP Morgan upgraded its investment opinion.
In the bond market, the 10-year U.S. Treasury yield reached 2.185%, a new high since 2019.
Investors also took note of the peace negotiations between Russia and Ukraine. Expectations for a ceasefire spread as the two sides negotiating delegations reported that they were preparing a 15-point peace plan, and investor sentiment improved. Russian Foreign Minister Sergei Lavrov has given positive signs that there is hope for a compromise.
The stabilization of oil prices also contributed to the rebound in the stock market. Oil prices fell on hopes of a ceasefire between Russia and Ukraine and a surprise increase in US crude inventories. On the New York Mercantile Exchange, the price of West Texas Intermediate crude for April ended at $95.04 per barrel, down $1.40 from the previous day. WTI price fell for the third consecutive trading day.
