Equities Higher With the Fed Decision to Come Shortly…..

After a knee-jerk reaction that brought the Dow briefly into negative territory following the Fed’s monetary policy decision, U.S. equities were able to end the session with solid gains to add to yesterday’s strong rally. The Fed increased the target for the fed funds rate, but the move was widely expected. Upbeat developments surrounding the war in Ukraine also aided sentiment with a peace agreement between Russia and Ukraine being termed to “sound more realistic,” and President Biden announced more aid for the embattled country. Equity news remained light and continued to take a back seat to the geopolitical and Fed headlines, but Jabil trounced quarterly estimates and upped its guidance. The economic calendar was robust today, as retail sales came in mixed, but saw solid revisions to the prior month’s readings, import prices rose nearly in line with estimates, and mortgage applications fell amid another jump in rates, while home builder sentiment slipped, and business inventories matched estimates. Treasuries finished mixed, with yields on the short end moving sharply higher following the Fed’s announcement, and the U.S. dollar was lower, while gold and crude oil prices also lost ground. Europe saw widespread gains ahead of the Fed meeting amid the upbeat geopolitical events, and markets in Asia rebounded.

The Dow Jones Industrial Average rose 519 points (1.6%) to 34,063, while the S&P 500 Index gained 95 points (2.2%) to 4,358, and the Nasdaq Composite increased 488 points (3.8%) to 13,437. In very heavy volume, 6.2 billion shares of NYSE-listed stocks were traded, and 6.4 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.40 to $95.04 per barrel. Elsewhere, the gold spot price traded $3.20 lower to $1,926.50 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.8% at 98.36.

Market volatility persisted, with stocks able to notch a second-straight day of solid gains, as investors continued to monitor geopolitical headlines with the Russia/Ukraine conflict in its third week. Optimism for a diplomatic resolution has risen, as the two countries met for more talks yesterday. While the negotiations ended without any progress on a ceasefire, the tone appeared more upbeat, with Ukrainian President Zelenskyy saying that an agreement was beginning to appear more authentic. However, the shelling of Kyiv endured and continued to dominate the news.

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, raising the target for the Fed funds rate by 25 basis points (bps) to a range of 0.25% to 0.50%, as was widely expected, the first increase since 2018. In its statement, the Committee said that economic activity and employment have continued to strengthen, with job gains strong in recent months, and the unemployment rate declining substantially. However, “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.” Additionally, the statement touched on the conflict in eastern Europe, noting, “The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.” Regarding its balance sheet, the Fed said it expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting. The rate hike was approved with only one dissent by St. Louis Fed President James Bullard who opted for a 50-basis-point increase.

Advance retail sales for February rose by 0.3% month-over-month (m/m), versus the Bloomberg consensus forecast of a 0.4% rise, and compared to January’s positively-adjusted 4.9% increase. Last month’s sales ex-autos grew 0.2% m/m, compared to expectations of a 0.9% gain and as January’s figure was revised upward to a 4.4% increase. Sales ex-autos and gas were down 0.4% m/m, short of estimates calling for a 0.4% rise, while January’s reading was adjusted solidly upward to a 5.2% increase. The control group, a figure used to calculate GDP, declined 1.2% m/m, versus projections of a 0.3% increase, and following January’s upwardly-revised 6.7% jump.

The Import Price Index rose 1.4% m/m for February, versus estimates of a 1.6% gain, and compared to January’s downwardly-revised 1.9% increase. Versus last year, prices were up by 10.9%, compared to forecasts of an 11.3% increase and January’s downwardly-revised 10.7% rise.

The MBA Mortgage Application Index declined 1.2% last week, following the prior week’s rise of 8.5%. The downward move came as an 2.8% decline in the Refinance Index more than offset a 0.7% increase for the Purchase Index. The average 30-year mortgage rate resumed its climb after moderating last week, jumping 18 basis points (bps) to 4.27%.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in March slid to 79 from February’s downwardly-revised 81 level, its lowest level in six months and below estimates calling for a reading of 81. The NAHB said, builders are reporting growing concerns and expected higher interest rates connected to tightening monetary policy “will price prospective home buyers out of the market,” adding, “The impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”

Treasuries were mixed, with yields on the short end of the curve jumping following the Fed’s decision. The yield on the 2-year note rose 6 bps to 1.92%, the yield on the 10-year note gained 1 bp to 2.17%, while the 30-year bond rate was 6 bps lower at 2.44%.

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