Stock Market Jumps Even With Expectations Of Large Rate Hike

Stock market indexes climbed more than 1% Wednesday morning, their best gains in nearly two weeks, as investors waited for the Fed to announce its interest rate policy.

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Indexes are rebounding from a wave of panic selling. The Nasdaq composite jumped 1.7% and the S&P 500 1.5%. Small caps also participated, with the Russell 2000 up 1.2%.

The Dow Jones Industrial Average rose 1.2% as half of its 30 components climbed more than 1% in the first half-hour of trading. Microsoft (MSFT) rose 1.5% in an attempt to rebound from a one-year low. Coca-Cola (KO) bounced up from its 200-day moving average.

Volume was higher on the Nasdaq and lower on the NYSE compared with the same time on Tuesday. Advancing stocks led decliners by more than 6-to-1 on the NYSE and by 4-to-1 on the Nasdaq.

Federal Reserve Set To Increase Rates

The Federal Reserve concludes its meeting today at 2 p.m. ET with a decision on interest rates. Most market participants expect the Fed to lift the fed funds rate by three-quarters of a point, which would be the largest since 1994.

Futures markets indicated a half-point hike until Friday’s hotter-than-expected consumer inflation report changed the rate outlook. With today’s rate increase almost a foregone conclusion, the stock market will be watching Fed Chairman Jerome Powell’s comments on what’s next. Could there be additional 75-basis points hikes?

As the Fed meets this morning, the U.S. Census Bureau reported that retail sales fell 0.3% in May. Excluding autos, May sales rose 0.7%, and 0.1% if you also exclude gasoline. All three measures missed the consensus Econoday estimates. Economists expected total sales to inch up 0.1% after rising 0.7% in April.

“The onslaught of soaring prices and interest rates and plunging confidence overwhelmed American consumers in May, likely the start of a much tougher road ahead,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “The weak sales report likely won’t influence the Fed, as it will need to see a sustained period of weakness in domestic demand and likely labor markets before breathing a sigh of relief on the inflation front.”

The yield on the 10-year Treasury note fell 11 basis points to 3.37% after accelerating higher the past three sessions.

Wall Street Cheers Big Fed Rate Hike, ‘Flexible’ Powell

ECB Tries To Protect Weaker Economies

In Europe, the European Central Bank announced plans to protect weaker eurozone nations from rising interest rates. The ECB also is fighting inflation with rate hikes, but some countries such as Italy face a larger burden because they are heavily indebted.

The German DAX was up 1.5% in afternoon trading. The Paris CAC 40 rose 1.2% and London’s FTSE 100 climbed 1.4%.

Innovator IBD 50 ETF (FFTY) rose 0.6%.

Steel Dynamics led the IBD 50 with a 4% jump, extending a rebound off the 200-day line. Other IBD 50 industrial stocks also performed well, including Commercial Metals (CMC), Alpha Metallurgical Resources (AMR) and coal producer Ramaco Resources (METC).

Nearly all 11 S&P sector indexes were higher, and most more than 1%. Only Energy Select Sector SPDR (XLE) fell, and only slightly. The price of U.S. crude declined 0.6% to $118.25 a barrel.

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