U.S. stocks rallied to close higher Wednesday, with the Dow Jones Industrial Average reclaiming the 25,000 level for the first time in over a month, after scoring a boost from solid corporate results and a seemingly accommodative Federal Reserve.
How did the benchmarks fare?
The Dow Jones Industrial Average DJIA, +1.77% rose 434.90 points, or 1.8%, to end at 25,014.86, pulling back from a high 25,109.10. The S&P 500 index SPX, +1.55% advanced 41.05 points, or 1.6%, to 2,681.05 and the Nasdaq Composite Index COMP, +2.20% climbed 154.79 points, or 2.2%, to 7,183.08.
All three benchmarks closed at their highest levels since at least Dec. 6, according to Dow Jones Market Data.
What drove the market?
The Fed held rates unchanged at a range of 2.25% to 2.50%, as widely expected, but dropped its longstanding reference to “further gradual” rate hikes. Instead, it emphasized that it will be “patient as it determines what future adjustments to the target range for the federal-funds rate may be appropriate to support these outcomes.”
The central bank also said it would adjust the rate of its balance-sheet runoff, and may even consider ending it.
The rate decision as well as the verbiage was widely anticipated by the financial markets, partly due to a belief among some investors that the Fed cannot be too hawkish in the wake of the stock market selloff in December amid signs of slowing global economy.
The market had kicked off the day on a buoyant mood as investors mostly cheered the latest round of earnings reports, starting with result from Apple and Advanced Micro Devices Inc. late Tuesday and continuing with Boeing Wednesday. The aircraft maker issued an upbeat outlook for 2019 and far surpassed Wall Street’s revenue expectations, further boosting market sentiment.
Technology stocks advanced after Apple produced results that weren’t as bad as feared, though the iPhone maker saw a sharp decline in revenue for the holiday quarter and a weaker-than-expected sales outlook for the current quarter.
Market participants have taken the results in stride, given an earlier warning from Chief Executive Tim Cook, and focused on improving performance in the tech giant’s services business. Gains in the broader tech market also were bolstered by a sharp gain for Advanced Micro Devices following an upbeat forecast.
Meanwhile, U.S.-China trade talks resumed Wednesday as federal prosecutors accused Huawei of violating U.S. sanctions on Iran and of intellectual property theft which had obviously angered the Chinese government. Huawei has denied the allegations.
What were strategists saying?
“More important than the Fed’s promise to be ‘patient’ about raising rates is the Fed’s assertion that it will not hesitate to make changes to balance sheet normalization. The balance sheet is a far more powerful tool, and one that has a bigger impact on the stock market,” said Kristina Hooper, chief global market strategist at Invesco.
“We can look at how stocks behaved during quantitative easing as a guide: stocks went up and volatility went down. We’ve seen the opposite as the Fed has ramped up balance sheet normalization, so the notion that the Fed may scale back balance sheet normalization is likely to tamp down volatility and help push up stocks,” said Hooper.
“Much to no one’s surprise, the Federal Reserve held policy rates steady in the target range of 2.25% to 2.50% today. Consistent with recent dovish-leaning rhetoric from both Chair Powell and several FOMC officials, the Federal Reserve has adopted an increasingly cautious approach in response to heightened global growth uncertainties, financial market volatility, and the fragile trading relationship between the U.S. and China.,” said Candice Bangsund, portfolio manager at Fiera Capital, in emailed comments.
“We expect the Fed to take a pause and remain sidelined through the first half of the year in order to monitor the evolution of the macroeconomic landscape and recommence with two more rate hikes in the back half of the year,” she said.
“Earnings are clearly the driver today,” Aaron Clark, portfolio manager at GW&K Investment Management told MarketWatch, adding that investors have been pleasantly surprised by earnings results that have ranged from very good to better-than-feared.
“Earnings have been pretty good overall, and the fear that we’re at the precipice of a recession has lifted,” he said.
Which stocks were in focus?
Apple AAPL, +6.83% rose 6.8%, Advanced Micro Devices AMD, +19.95% jumped 20%, and Boeing BA, +6.25% soared 6.3%.
AT&T Inc. T, -4.33% shares slid 4.3% after the telecom giant fell short of Wall Street estimates for fourth-quarter revenue.
Shares of McDonald’s Corp. MCD, -0.22% fell 0.2% after the fast-food giant beat fourth-quarter earnings expectations, but fell short of revenue forecasts.
Alibaba Group Holding Ltd. BABA, +6.34% climbed 6.3% after the Chinese e-retailer beat analysts expectations for fiscal third-quarter earnings, but fell short of revenue targets.
Shares of Tupperware Brands Corp. TUP, -27.43% tumbled 27% after the firm reported fourth-quarter revenue below expectations.
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What data were in focus?
The private sector added 213,000 jobs in January, according to payroll-processing firm ADP. That is above the consensus estimate of 178,000 new jobs, according to FactSet.
The ADP report isn’t as closely watched as the Labor Department’s jobs report, and it often varies significantly from the official government number on Friday. Still, economists use those figures to inform their predictions for the official report.
Pending home sales fell by 2.2% in December to their lowest level in nearly five years, according to the National Association of Realtors.
How were other markets trading?
Stock markets in Asia finished mixed, with the Shanghai Composdite Inex SHCOMP, +0.42% dropping 0.7% and Hong Kong’s Hang Seng Index HSI, +0.88% rising 0.4%. In Europe, the FTSE 100 index UKX, +1.58% gained 1.6%, while the Stoxx Europe 600 SXXP, +0.36% closed 0.4% higher.
Crude oil CLH9, +0.72% finished higher, while gold prices GCH9, +0.63% settled generally unchanged and the U.S. dollar DXY, -0.08% retreated.
