It has been found that in the previous eight hiking cycles, the S&P 500 has been consistently higher one year after the first hike.
For Wall Street, it’s business as usual as the Federal Reserve takes the first step to combat rising inflation in the country. US inflation is forecasting high levels for decades and the central bank has already stepped in to curb inflation before it flares up further. For the first time since 2008, the Federal Reserve raised interest rates by a quarter of a percentage point and signaled more hikes in all six remaining meetings in 2022.
US stocks closed close to session highs, with the S&P 500 posting a gain of 2.24% and Nasdaq Composite clocking in at 3.77% after gaining more than 487 points before trading ended. Equities likely took inspiration from Powell, who admitted that “it may take longer than we want” to lower inflation, which may have been interpreted as a slower, longer walking cycle to support an “ongoing economic expansion,” Madhavi says. Arora, Chief Economist, Emkay Global Financial Services.
Fed Chair Jerome Powell’s comments about the strength of the US economy and its ability to cope with monetary tightening appear to be resonating with investors.
“The markets have already priced in the possibility that the US FED will raise its FED fund rate in almost all meetings in 2022 and early 2023. What is seen as positive is that despite this normalization, the FED expects real GDP to rise. growth continues above 2.5% and, most importantly, expects the unemployment rate to remain at its current level of 3.5%. So no hard landing at all. That, if true, is extremely encouraging for equity markets and perhaps explains the positive near-term response to the launch of the FED,” said Arvind Chari, CIO, Quantum Advisors.
“The main interpretation of the entire reporting is that the FOMC expects increases to lead to disinflation without much slowing down in growth or rising unemployment,” said Azeem Ahmad – Head of Portfolio Management Services and Principal Officer, LIC AMC
Some of the biggest winners on Nasdaq were:
Atlassian Corp. PLC Cl A
Mercado Libre Inc.
Datadog Inc. Cl A
ASML Holding NV
Micron Technology Inc.
Excerpts from the Federal Reserve’s FOMC Statement
Indicators of economic activity and employment have continued to strengthen. The number of jobs has increased sharply in recent months and the unemployment rate has fallen significantly. Inflation remains high on the back of supply and demand imbalances related to the pandemic, higher energy prices and broader price pressures.
The Committee expects inflation to return to the 2% target and the labor market to remain strong. In support of these goals, the Committee has decided to increase the target range for the Federal Funds rate to 0.25 to 0.5 percent and expects further increases in the target rate to be appropriate. In addition, at an upcoming meeting, the committee expects to begin reducing its holdings of government treasury bills and bonds and mortgage-backed securities.
Fed rate hike and stock market
Rising interest rates do not necessarily have a negative effect on the stock market. According to studies done in the past, US stocks could experience more volatility once rates are raised. However, it has been found that in the previous eight hiking cycles, the S&P 500 has been consistently higher one year after the first hike.
Markets may still show volatility in the coming weeks. “The market is served with curveballs as usual. We are still not done with COVID, we do not know the outcome of the skirmish between Russia and Ukraine and therefore we cannot predict the outcome of commodity prices and therefore inflation,” Chari added.
While the Fed will continue to tackle inflation in addition to managing economic growth, investors can continue to look for opportunities in the growth stocks available at reasonable valuations.
This post Nasdaq gains nearly 4% after Fed raises interest rates for the first time since 2008 was original published at “https://www.financialexpress.com/investing-abroad/featured-stories/nasdaq-clocks-nearly-4-gain-after-fed-hikes-interest-rate-for-the-first-time-since-2008/2463735/”