S&P 500 and Nasdaq Jump 1% After Fed Holds Rates Steady

Barry Adams
01 Nov, 2023
New York City

Stocks continued to move higher after the Fed's rate decision, and investors stepped up to increase bets on tech stocks.

Treasury yields for longer-dated maturities edged slightly higher after the Federal Reserve left rates unchanged but left the door open for a rate hike at the next meeting.

Policymakers are struggling to lower the inflation rate to 3% while keeping economic growth intact and navigating tight labor market conditions.

Historically, when interest rates rise rapidly, the labor market cools and economic growth slows, but the latest rate tightening cycle has had little impact on the labor market and economic growth.

The Federal Reserve has increased rates over the last eighteen months from near zero to close to 5.5%, and the U.S. economy has managed to avoid a much-foreseen economic slowdown or a recession.

Policymakers are still struggling to cool inflation, which has weakened in the last eleven months, but prices are still rising faster than the 2% target rate set by the central bank.

The Federal Reserve is struggling to understand the cumulative effects of 500 basis points of rate increases and the lags with which rate hikes affect economic activities, inflation, and economic and financial developments.

Inflation is still high because supply chain disruption-driven price hikes are cooling, helping the inflation to moderate, but demand-driven inflation is still fueling inflationary pressures.

While the Fed talks about cooling inflation, it also fans the fires of inflation by purchasing large chunks of federal government debt, which is fueling inflationary forces.

The U.S. Treasury Department is planning to auction $112 billion in debt next week as the federal government prepares to finance its rising debt, which reached $33.7 trillion at the end of October.

The federal government increased its deficit by 23.2%, or $320 billion, to $1.7 trillion in the fiscal year 2023 ending in September, and the federal deficit is expected to approach $2 trillion in the current fiscal year if the government continues to spend at its current levels.

The White House is seeking $106 billion to finance wars in Israel and Ukraine, and the president's office is looking for an additional $56 billion for childcare and disaster relief.

In stock trading on Wall Street, market indexes advanced more than 1% because investors bought into the narrative that the central bank is done raising rates for now and may skip rate hikes at the next meeting in December.

 

Fed Leaves Rates Unchanged, Sets No Timetable to Lower Inflation

The Federal Reserve held the fed funds rate range at a 22-year high between 5.25% and 5.50% for the second time in a row and left the door open for another rate hike to cool inflationary pressure.

The central bank's move was widely anticipated, but policymakers failed to provide a definite timetable for bringing down inflation to the target rate of 2%.

 

Private Sector  Hiring  Accelerated in October 

Private sector payrolls expanded to a weaker-than-expected 113,000 in October, the ADP survey showed on Wednesday.

Payrolls expanded at a faster pace after rising by 89,000 in September, after education and healthcare added 45,000 jobs in the month.

The U.S. Labor Department is set to release its October nonfarm payroll estimate on Friday, and economists polled by Ticker.com are looking for payrolls to expand by 195,000.

The ADP survey and the nonfarm payrolls survey significantly diverge at times because the government data is based on a larger sample size and has a greater diversity of employers in its sample size.

 

28-year Low In Mortgage Application Volume

Mortgage applications declined by 2.1% in the week ending October 27, following a 1% fall in the previous week and extending the weekly decline to the third week in a row.

The 30-year fixed rate dipped slightly to 7.86% but remained close to 23-year highs and has been above the 7-percent level since early August 2023.

The refinance share of mortgage activity decreased to 31.2% of total applications from 31.4% the previous week.

The adjustable-rate mortgage share of activity increased to 10.7% of total applications as buyers struggled with elevated interest rates and home affordability and hoped they would be able to later refinance mortgages at a lower rate.

 

U.S. indexes and Yields

The S&P 500 index increased 1.0% to 4,235.55, and the Nasdaq Composite advanced 1.3% to 13,026.22. 

The yield on 2-year Treasury notes decreased to 5.0%, 10-year Treasury notes inched lower to 4.80%, and 30-year Treasury bonds edged down to 4.98%.

Crude oil decreased $0.54 to $80.47 a barrel, and natural gas prices fell 8 cents to $3.48 a thermal unit.

Gold increased $2.01 to $1,981.48 an ounce ahead of the Fed's interest rate decision later in the day.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged higher to 106.86, and the index traded volatile after the euro and the pound eased for the second day in a row and the yen fell to a multi-year low after the Bank of Japan left its ultra-loose policy intact.

 

U.S. Stock Movers

Wayfair Inc. declined 4.5% to $40.46 after the online furniture retailer reported weak third-quarter revenue, reflecting a weak demand for home goods and residential furniture.

Advanced Micro Devices, Inc. jumped 4.4% to $102.64 after the advanced chip maker reported mixed quarterly results and offered a positive 2024 outlook for its data center segment.

Wework Inc. plunged 52% to $1.08 after a report in the Wall Street Journal noted that the company is looking to file Chapter 11 bankruptcy protection as early as next week.

Caesars Entertainment Inc. decreased 0.7% to $39.63 after the resorts and casinos operator reported rising revenue and earnings in the third quarter, helped by steady demand at its properties in Las Vegas.

Revenue rose 3.7% to $2.99 billion, and earnings increased to 34 cents from 24 cents a year ago.

Match Group Inc. plunged 16.8% after the dating services provider forecast fourth-quarter revenue that fell short of market expectations.

In the third quarter, revenue rose 8.9% from a year before to $881.6 million, and earnings per share eased to 57 cents from 58 cents a year ago.

Active paying subscribers declined 5% from the previous quarter to 15.7 million, and average subscriptions increased 15% from the previous quarter to $18.39.

During the quarter, the company repurchased $300 million of stock and a total of $445 million in the year-to-date, reducing its share count by 2.8% from the beginning of the year.

About $667 million is available under the $1 billion stock repurchase program, and the company declared its plan to return to shareholders at least 50% of its free cash flow.

Paycom Software Inc. plunged 37.7% to $152.38 after the payroll processor forecasted weak fourth-quarter revenue.

In the third quarter, non-GAAP net income increased to $102.4 million, or $1.77 per diluted share, up 39% from the prior-year period.

During the quarter, the company repurchased over $76 million worth of stock and paid nearly $22 million in cash dividends.

 

European Stocks and Bond Yields Rebounded In Cautious Trading 

European markets hovered near the flatline, and the euro edged lower for the second day in a row.

Market indexes across Europe were in a holding pattern, and investors reacted to another batch of earnings and bond yields traded with a downward bias.

Investors awaited interest rate decisions from the Federal Reserve later today and from the Bank of England on Thursday.

On Tuesday, Eurostat, the statistical agency of the currency union, said the consumer price index in the eurozone dropped to a two-year low, raising hopes that the European Central Bank may pause rates for an extended period.

But worries of an economic slowdown dominated market sentiment after the eurozone economy struggled to expand in the third quarter.

Moreover, worries of a wider war in the Middle East also kept crude oil and natural gas prices elevated for the third week in a row, rekindling fears of a rebound in inflation.

 

Europe Indexes and Yields

The DAX index increased 0.8% to 14,923.27, the CAC-40 index advanced 0.7% to 6,932.63, and the FTSE 100 index edged up 0.3% to 7,342.43.

The yield on 10-yetrar German bonds decreased to 2.75%, French bonds traded lower to 3.37%, the UK gilts edged down to 4.49%, and Italian bonds inched lower to 4.67%.

The euro hovered near a three-month low at $1.054, the British pound at $1.214, and the U.S. dollar at 90.88 Swiss cents.

Brent crude decreased $0.14 to $86496 a barrel, and the Dutch TTF natural gas edged lower by €0.25 to €47.76 per MWh.

 

Europe Stock Movers

Wolters Kluwer NV declined 3.5% to €116.90 after the Netherlands-based trade publishing firm reported adjusted operating profit for the first nine months declined 2% in constant currencies.

Skanska AB plunged 11.5% to 148.80 Swedish kronor after the Swedish construction firm reported lower-than-expected third-quarter profit, reflecting a weak commercial real estate market.

ASOS Plc dropped 10.5% to 352.10 pence after the struggling online fashion retailer reported an annual loss of £300 million.

ASOS stock dropped to the level last seen in 2009.

The embattled fashion retailer said annual revenue declined 11% to £3.5 billion from £3.9 billion, after-tax losses expanded to £223.1 million from £30.8 million, and diluted earnings per share fell to 213 pence from 30.9 pence a year ago.

Active customers declined 9% to 23.3 million, but average transaction value increased 7% to £40.3 million from £37.6 million, and average order frequency edged lower to 3.6 from 3.8 a year ago.

The company accelerated its turnaround efforts, adjusted from pandemic boom to post-pandemic bust, and aligned its corporate structure to reflect weaker demand from repeat customers.

Premier customers declined 11%, reflecting higher subscription prices and higher thresholds for free delivery.

Aston Martin Lagonda Global Holdings PLC dropped 11% to 194.60 pence after the luxury vehicle maker reported a wider-than-expected loss in the third quarter.

The company also lowered its 2023 volume outlook for the DB12 model, but total vehicle sales in the quarter rose 4% to 1,444 from 1,384 a year ago.

Revenue increased 15% to £362.1 million from £315.5 million, and net loss shrank to £118.0 million from £228.2 million.

In the nine-month period, the wholesale average selling price across all models increased to £219,000 from £195,000 a year ago.