US Stocks Rise Amid Fed Rate Increase

US Stocks Rise Amid Fed Rate Increase

US stocks maintained gains for the day Wednesday as the Federal Reserve decided to move its short-term benchmark interest rate 0.75 percentage-point higher.

The S&P 500 climbed 0.6%, a bit lower than it was before the Fed’s 2 pm ET decision. The Dow Jones Industrial Average added 76 points, or 0.3%, and the Nasdaq Composite rose 1.4%.

The Federal Reserve’s move is its latest effort to quell inflation through tighter monetary policy. Investors expected the Fed to raise its short-term benchmark rate by 0.75 percentage point, which marks the central bank’s biggest interest-rate increase since 1994.

The central bank had previously reported it was likely to raise rates by a half percentage point in June and in July. Many analysts believe recent inflation reports made officials rethink their stance.

Data Friday showed US consumer prices rose in May at the fastest pace since 1981, while a report Monday showed households’ expectations for inflation in the short term rose to the highest level on record. Federal-funds futures, used by traders to track changes in expectations for monetary policy, now show the market pricing in a 96% chance of a 0.75-percentage-point increase, up from just 8% a week ago, according to CME Group.

Ultimately, the guidance the Fed gives about the direction of interest rates Wednesday is more important for markets than the size of the rate increase, said Dorian Carrell, a fund manager at Schroders. Uncertainty about monetary policy has been a key driver of volatility this year, helping send the S&P 500 on Monday into bear-market territory, or a drop of at least 20% from a previous high.

“Markets are pricing in a Fed that’s trying to get in front of the curve rather than behind the curve on inflation,” said Art Hogan, chief market strategist at National Securities.

Stocks rose broadly Wednesday, with eight of the S&P 500’s 11 sectors higher around midday.

Technology stocks, which have been among the hardest-hit areas of the market this year, were among the biggest gainers. Microsoft,

Nvidia,

Amazon.com and Netflix each added more than 2% apiece.

Economically sensitive areas of the market also rose. Bank stocks, which had sold off on investor fears about a slowdown in growth, climbed Wednesday, with the KBW Nasdaq Bank Index up 1.8%.

Energy stocks slide, marking a relatively rare retreat for the year’s best-performing S&P 500 sector. The S&P 500 energy sector fell 1.3%.

Meanwhile, US government bonds steadied after sliding in recent weeks in a selloff that has pushed yields to their highest levels in more than a decade. The yield on 10-year Treasurys slipped to 3.422% from 3.482% Tuesday. Yields, which fall as bond prices rise, help set rates for everything from mortgages to federal student loans to auto loans.

Elsewhere, European stocks and peripheral government bonds in the eurozone rallied after the ECB held an ad hoc meeting Wednesday to discuss turbulence in the region’s bond markets.

The ECB outlined a plan to buy more bonds of weaker eurozone governments under an existing bond-purchase program. It tasked ECB staff with accelerating the design of a new instrument that would narrow differences in borrowing costs across the region, addressing financial imbalances that have long posed a problem to the currency union.

“They wanted to make sure financing conditions don’t deteriorate too much,” said Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management. He said the meeting signaled that the ECB was ready to cushion markets earlier than investors had expected.

The Stoxx Europe 600 rose 1.4%, led by shares of banks and insurers. Shares of Italian banks, which own a substantial chunk of government bonds, had suffered as the debt fell in price. Intesa Sanpaolo and UniCredit were among the best performers in the European market Wednesday.

Where in Americans’ household budgets is inflation hitting the hardest? WSJ’s Jon Hilsenrath traces the roots of the rising prices to learn why some sectors have risen so much more than others. Photo Illustration: Laura Kammermann/WSJ

Cryptocurrencies kept tumbling. Bitcoin fell below $21,000, putting the digital currency on track for a ninth straight daily loss. Ethereum slid too, extending a rout in cryptocurrencies that has taken a toll on companies including Coinbase Global, which is laying off almost a fifth of its staff, and Celsius Network, a crypto lender now examining restructuring options.

Behind the selloff in crypto, and the recent turbulence in traditional financial markets, is the Fed’s likely change of gears in efforts to douse decades-high inflation. For years after the 2008-09 financial crisis, stocks, bonds and more speculative assets climbed as central banks pinned borrowing costs at low levels to goose economic growth.

The pandemic, whose economic effects central banks and governments combated with unprecedented financial stimulus, turbocharged that upward trend. Rampant inflation has prompted the Fed and many of its counterparts to unwind easy-money policies, and the assets that had benefited most from them are suffering.

The S&P 500 sank further into bear territory on Tuesday.


Photo:

Michael Nagle/Zuma Press

Corrections & Amplifications
Yields on 10-year government bonds in Italy settled at 4.111% on Tuesday. An earlier version of this article incorrectly said yields settled at 4.067%. (Corrected on June 15)

Eric Wallerstein contributed to this article.

Write to Joe Wallace at joe.wallace@wsj.com and Akane Otani at akane.otani@wsj.com

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