S&P 500 rises as traders digest jobs, manufacturing data ahead of Fed minutes

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U.S. stocks wavered in the final hour of trade on Wednesday after the Federal Reserve’s meeting minutes showed none of the 19 top central bank officials expect it will be appropriate to cut interest rates this year, while warning rates could rise to somewhat higher-than-anticipated levels at upcoming meetings.

How stock indexes are trading

  • The Dow Jones Industrial Average gained 111 points, or 0.3%, at 33,255, after edging modestly lower following the release of the minutes.
  • The S&P 500 added 29 points, or 0.8%, to around 3,853.
  • The Nasdaq Composite climbed 87 points, or 0.8%, to 10,469.

On Tuesday, stocks ended lower to kick off 2023 after suffering their worst yearly performance since 2008.

What’s driving markets

Stocks traded higher on Wednesday afternoon, after Dow Jones Industrial Average and Nasdaq Composite briefly slipped into the red after the Federal Reserve released the minutes from its Dec. 13-14 meeting, which showed none of the policymakers expect any interest rate cuts in 2023, as they awaited more evidence that inflation was on a sustained downward path.

Fed officials also said that if markets start to ease financial conditions, especially if driven by a misperception of how the Fed was responding to the data that “would complicate” the FOMC’s effort to restore price stability.

“It appears that officials remain hawkish and are especially concerned about the tight labor market,” said Nigel Green, CEO of asset management firm, deVere Group. “With the labor market not cooling as fast, there seems to be a considerable turnaround in tone from the more dovish minutes in November. These minutes dash yet more hopes for an economic soft landing.”

Traders currently price in a 69.2% likelihood of a 25 basis point hike to the Fed funds target rate at its next policy meeting, which concludes February 1, according to CME’s FedWatch tool.

“Fed funds futures interpreted the minutes as more hawkish than those from the November meeting, nudging their estimate of the terminal fed funds rate higher to 5%,” wrote Ryan Sweet, chief US economist at Oxford Economics, in emailed comments. “Unlike the Fed, financial markets anticipate the Fed cutting interest rates later this year.”

In economic data Wednesday, Institute for Supply Management data showed weakness in U.S. factory activity in December. The ISM manufacturing index, which measures U.S. manufacturing activity, slipped to 48.4, the lowest level since May 2020. Any number below 50% reflects a contraction in activity. Equity bulls were hoping to see data showing an economic growth that is slowing, though not too much, as this could allow the U.S. central bank to slow the pace of interest rate rises.

However, U.S. job openings fell slightly in November in a still strong labor market, raising concerns that the Federal Reserve may not be near the end of its monetary tightening cycle.

“Plentiful openings with relatively few available workers indicate a tight labor market and put upside pressure on wages,” said Jeffrey Roach, chief economist for LPL Financial, in emailed comments Wednesday. “The Federal Reserve will continue tightening as rising wage pressure is a key risk to the inflation outlook.”

Read: U.S job openings stay high at 10.5 million and show labor market still very strong

Wall Street’s benchmark S&P 500 index fell 19.4% in 2022 after the Fed tried to combat the highest inflation in decades by raising interest rates 425 basis points in just nine months, a move that risks recession and lower company earnings.

Companies in focus

  • GE HealthCare Technologies  jumped around 6.4% as it began trading as a separate company on the S&P 500 index Wednesday. In 2021 GE announced plans to break up into three companies so it can focus on its aviation business. It plans to spin off its energy segment in 2024. Shares of GE were up more than 3%.
  • Salesforce shares rose 3.2% after the cloud based marketing software company announced a restructuring plan that includes cutting its staff by about 10% and the closure of some offices.
  • Chinese ADRs jumped after Ant Group received approval to expand its consumer finance business in a sign of progress in resolving regulators’ concerns. Shares of Alibaba  which owns 33% of Ant, gained 12.9%, while JD.com  surged 14.7%.
  • Shares of Coinbase Global, Inc.  jumped 11.5% after the cryptocurrency exchange settled a case with New York’s state financial regulator and agreed to pay a $50 million penalty for prior compliance issues and invest another $50 million in compliance efforts.

— Jamie Chisholm contributed to this article

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