The S&P 500 and Nasdaq Composite climbed on Thursday, powered by big technology stocks, as the Federal Reserve’s decision to slow the pace of interest-rate hikes fueled investors’ hopes that the central bank could pivot to cutting rates later this year.
The S&P gained 0.9% in afternoon trading, while the tech-focused Nasdaq Composite jumped 2.3%. The Dow Jones Industrial Average was the laggard, sliding 0.6%.
Alphabet and Amazon.com posted gains of more than 5%. Both were scheduled to report earnings after the closing bell.
parent Meta Platforms, which reported quarterly results late Wednesday, zoomed 23% higher after it gave an upbeat outlook for the coming year and said it would buy back an added $40 billion in shares.
The Fed on Wednesday lifted its benchmark federal-funds rate by a quarter-percentage point, its smallest increase since it kicked off an aggressive monetary-tightening campaign last March. That sent stock indexes climbing and U.S. government-bond yields falling.
After enduring last year the fastest pace of interest-rate increases since the 1980s, investors are now hopeful that the Fed has turned a corner. Derivatives markets show that many are betting that the central bank will begin cutting interest rates this year.
That wager helped riskier assets extend their recent gains. The Nasdaq is up roughly 16% year to date as of Thursday afternoon. That’s the best performance through Feb. 2 for the tech-focused index since 1975.
Pricing in derivatives markets shows investors expect the central bank will switch to cutting interest rates later this year.
Photo:
ANDREW KELLY/REUTERS
Markets were also buoyed Thursday by fresh economic data. U.S. jobless claims, a proxy for layoffs, showed continued resilience in the labor market, even amid layoff announcements in tech and other industries. Claims fell by 3,000 to a seasonally adjusted 183,000 last week, hitting their lowest level since April 2022.
Meanwhile, Labor Department data showed slowing wage growth, a sign that inflation may be easing. Unit-labor costs, a key measure of wages, rose 1.1% in the fourth quarter–down from a 2% rate in the third quarter and less than the 1.5% gain expected by economists.
The market’s exuberance spread to
the struggling home-goods retailer whose shares are popular with meme-stock investors. The company’s shares surged 17% a day after it confirmed missing interest payments on its bonds.
In comments Wednesday, Fed Chair
Jerome Powell
reiterated his previous stance that the fight against inflation isn’t over, and that officials will need to keep rates higher for longer. Still, investors largely shook off those comments, extending a disconnect in recent months between the Fed’s messaging and the reaction of financial markets.
“There was a risk that he more explicitly chastised financial markets and said, ‘Financial markets have made a mistake,’” said John Roe, head of multiasset funds at Legal & General Investment Management, referring to stocks’ strong rally this year. “It was almost like the absence of bad news was enough” to drive asset prices higher, he said.
Still, Mr. Roe added that he has a more pessimistic outlook for markets and expects a large U.S. slowdown in the second half of the year. If the rally extends, he said, “we would be selling because of our base case.”
In the U.S. government-bond market, the yield on the benchmark 10-year U.S. Treasury note yields ticked up after two days of declines, rising to 3.400% from 3.398% on Wednesday. Yields rise when bond prices fall.
Investors were also monitoring interest-rate decisions from central banks abroad. Both the Bank of England and the European Central Bank lifted their key interest rates by a half-percentage point before the U.S. opening bell. The banks diverged, however, in suggesting what’s to come: The ECB signaled it would enact a similar increase in March, while the BOE indicated it may soon pause as inflation slows and the U.K. economy falters.
The pan-continental Stoxx Europe 600 gained 1.3%.
In Asia, Hong Kong’s Hang Seng lost 0.5%, while China’s Shanghai Composite ended mostly flat. Japan’s Nikkei 225 added 0.2%. In India, the S&P BSE Sensex Index eked out a 0.4% gain, even as losses from the selloff in stocks tied to billionaire Gautam Adani topped $100 billion.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Alexander Osipovich at alexo@wsj.com
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