Nasdaq, S&P, Dow rip higher after Fed chief Powell says progress made against inflation

Spencer Platt

U.S. stocks on Wednesday pared their losses and moved higher after Federal Reserve chair Jerome Powell acknowledged that a "disinflationary process" had started, but cautioned that the central bank had more "work to do" and signaled more rate hikes ahead.

The Fed earlier hiked interest rates by 25 basis points as widely expected. The monetary policy committee's statement also amended their words on inflation to add that it had "eased somewhat".

After spending the trading session in the red through the day on mixed economic data and quarterly results, Wall Street's major indices remained largely unchanged after the release of the statement. They began to move higher after Powell began his speech and gained momentum through the post-decision press conference.

The tech-heavy Nasdaq Composite (COMP.IND) was now up 2.51% to 11,875.26 points, after falling as much as 0.73% earlier. The S&P 500 (SP500) was also in positive territory, higher by 1.51% to 4,138.32 points. The benchmark index had slipped as much as 0.97% earlier. The Dow (DJI) had joined the other two indices in the green, gaining 0.46% to 34,241.63 points.

Of the 11 S&P sectors, ten were now trading in the green, a complete about-turn from earlier in the day when ten sectors were trading in the red. Heavyweight sectors Technology and Consumer Discretionary led the gains, while Energy was still in the red.

Yields had moved sharply lower after Powell's comments on disinflation. The 10-year Treasury yield (US10Y) was now down 13 basis points to 3.40%. The 2-year yield (US2Y) - which is seen to be more sensitive to the Fed's interest rate moves - was now down 12 basis points to 4.09%. Meanwhile, the dollar index (DXY) was lower by 1.01% to 101.07.

"I think the big takeaway from the Fed conference is that (Powell) was less hawkish than anticipated and while he emphasized that there is more work to do, the market is not really buying it," Thomas Hayes, chairman at investment management firm Great Hill Capital, told Seeking Alpha.

"(Powell) had many opportunities to go full tilt hawk like he did in August, and he did not take those and the market is reading that as 'we're nearing the end of hikes' and we could wind up pausing for some time, if not now, then certainly after one more hike in March ... (Powell) had an opportunity to really destroy the market today and he didn't take it," Hayes added.

Powell in his speech did not directly answer a question about the recent easing of financial conditions, instead saying that they had "tightened significantly over the last year".

"The fact that Powell thinks that financial conditions have tightened, when they have eased across a range of metrics in recent months, is dovish," Renaissance Macro said, while Bespoke Invest tweeted that Powell "could have responded a lot more 'hawkishly' if he wanted".

Earlier on Wednesday, a deluge of economic data especially on the labor market painted a mixed picture of the U.S. economy. On the one hand, ADP's January private payrolls data moderated, while on the other, December JOLTS data showed an unexpected climb in job openings.

"December's sharp rise in job openings ... looks at odds with other data signaling labor demand has rolled over. Openings jumped by 572K to 11.0 million, the highest level since July. However, the increase was narrowly concentrated in industries where deteriorating demand may be giving employers cold feet about filling open positions, or seasonal factors were particularly flattering. A slightly worse mix of separations, with quits edging down and layoffs ticking up, suggests the labor market continues to gradually cool," Wells Fargo's Sarah House said in a note.

Additionally, the S&P Global manufacturing PMI for January came in at 46.9 compared to the forecasted 46.8 figure and 46.8 prior level.

Earnings news was also in the spotlight on Wednesday. Amgen (AMGN) slipped after a mixed quarterly report. Meanwhile, Electronic Arts (EA) and Match Group (MTCH) were among the top percentage losers on the S&P 500 (SP500) after disappointing results.

Conversely, Stryker (SYK), Advanced Micro Devices (AMD) and Altria (MO) were among the top S&P percentage gainers after their financial reports.

Class A shares of Snap (SNAP) slumped more than 13% after its weak earnings and guidance.

Traders will be looking ahead to results from Facebook-parent Meta (META) after the closing bell.