(Bloomberg) — Stocks pared gains and Treasuries extended losses as Jerome Powell reinforced that the Federal Reserve is committed to ensuring high inflation doesn’t become entrenched.
Major equity averages traded off session highs, the dollar rebounded, while 10-year yields topped 1.8%. In futures markets, traders held fairly steady the degree of hiking they foresee this year, with about 25 basis points priced-in at the March decision and a total of 100 basis points of tightening by the end of 2022.
Powell said he expects price pressures to subside over next year, while adding that it isn’t possible to predict with confidence what the appropriate policy path will be. In its statement, the Fed signaled its first rate hike since 2018 will happen “soon,” while saying it expects a balance-sheet reduction to start afterward.
Read: Fed Signals Liftoff ‘Soon,’ Sees Asset-Reduction Start Afterward
Comments:
- “In December, the Fed announced that it would taper its bond-buying program at a faster rate in a bid to control inflationary pressures. Today’s announcement represents continuity,” said Richard Flynn, UK Managing Director at Charles Schwab. “We expect to see the federal funds rate increased three times in the year ahead, perhaps starting as early as March.”
- “They are trying not to shock the market, even though they want to get very aggressive,” Scott Minerd, global chief investment officer at Guggenheim Partners, told Bloomberg Television. “Compared to what the market was pricing itself for — which was a very hawkish statement — this is pretty mild.”
- “By introducing the language ‘the committee expects it will soon be appropriate to raise the target range,’ they have all but committed to a March hike. Moreover, in acknowledging inflation is ‘well above 2 percent’ the Fed is confirming a series of forward hikes; very much in line with expectations,” said Ian Lyngen, managing director and head of U.S. rates strategy for BMO Capital Markets.
After a selloff that put stocks on course for their worst month since the start of the pandemic, strategists from Goldman Sachs Group Inc. and Citigroup Inc. say it’s now time to buy. Billionaire Paul Marshall is the latest trading titan to bet on value shares, which are making a historic comeback after years of neglect. Meantime, Barclays Plc strategists note that mutual funds and retail investors remain “very overweight” equities, so more de-risking is possible if fundamentals worsen.
Read: Grantham Has an Even Scarier Prediction Than His Crash Call
Other corporate highlights:
- Software behemoth Microsoft Corp. surged after saying its cloud-computing business has potential to drive growth, while Texas Instruments Inc. jumped as an upbeat outlook signaled demand for electronic components remains high. Chipmaker Intel Corp. and electric-vehicle heavyweight Tesla Inc. gained before their results.
- Planemaker Boeing Co. recorded $5.5 billion in total charges and costs to cover higher factory and customer expenses for the 787 Dreamliner.
- AT&T Inc. posted earnings that topped estimates, giving investors less reason to fret over lavish free-phone promotions.
- Nasdaq Inc., operator of the technology-heavy stock exchange, posted record revenue that beat analysts’ expectations.
- Mattel Inc. won back the license to produce toys based on Walt Disney Co.’s princesses and the “Frozen” movies.
Read: Hedge Funds Face New SEC Disclosures as Gensler Cracks Down
The latest economic readings showed that sales of new U.S. homes climbed in December to a nine-month high. Meantime, the merchandise-trade deficit unexpectedly widened to a fresh record as imports continued to rise, outpacing shipments overseas.
On the geopolitical front, the U.S. told its citizens to consider leaving Ukraine now given the continuing tensions with Russia and the “unpredictable” security situation in the Eastern European nation. Russian Foreign Minister Sergei Lavrov said the Kremlin will respond to any “aggressive” action by the U.S. as an ally of President Vladimir Putin proposed shipping weapons to separatists. President Joe Biden said he would consider personally sanctioning Putin if he orders an invasion of Ukraine.
What to watch this week:
- South African Reserve Bank rate decision Thursday.
- U.S. initial jobless claims, durable goods, GDP Thursday.
- Euro zone economic confidence, consumer confidence Friday.
- U.S. consumer income, University of Michigan consumer sentiment Friday.
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.3% as of 2:51 p.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average was little changed
- The MSCI World index rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.4% to $1.1260
- The British pound fell 0.2% to $1.3477
- The Japanese yen fell 0.6% to 114.53 per dollar
Bonds
- The yield on 10-year Treasuries advanced eight basis points to 1.85%
- Germany’s 10-year yield was little changed at -0.07%
- Britain’s 10-year yield advanced three basis points to 1.20%
Commodities
- West Texas Intermediate crude rose 1.6% to $86.93 a barrel
- Gold futures fell 1.8% to $1,822.30 an ounce
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