S&P closes higher after Fed confirms inflation focus minutes later

Jan 4 (Reuters) – The S&P 500 hit its session high after volatile trading following the release of minutes from the Federal Reserve’s last meeting on pace of rate hikes.

Officials at the central bank’s December 13-14 policy meeting agreed that the US central bank would continue to raise borrowing costs to curb the pace of inflation, but gradually aimed to limit risks to economic growth.

Investors scrutinized the central bank’s internal discussions for clues about its future path. After the meeting, Fed Chairman Jerome Powell had said more hikes were needed, and took a more dovish tone than investors had expected at the time.

While some money managers said there were no surprises in the minutes, the market seemed to be holding out some signs that the central bank is at least considering easing its policy tightening.

“The market is like a child asking for ice cream. The parents say ‘no,’ but the market keeps asking because the parents have been mean in the past,” said Burns McKinney, portfolio manager at NFJ Investment Group LLC in Dallas. “The market still thinks ice cream will be available, not as much as they thought before.”

McKinney pointed to the minutes for evidence of Fed officials’ concern that an unnecessary easing of monetary conditions would complicate their efforts to fight inflation.

Dow Jones Industrial Average (.DJI) up 133.4 points or 0.4% to 33,269.77; S&P 500 (.SPX) up 28.83 points or 0.75% to 3,852.97; and the Nasdaq Composite (.IXIC) It added 71.78 points, or 0.69%, to 10,458.76.

S&P’s rate-sensitive technical index (.SPLRCT) It lost some ground after a few minutes to finish up to 0.26%. Even the banking sector (.SPXBK)It benefited from higher rates, adjusted for gains, but still ended up 1.9%.

Energy (.SPNY) The weakest of the S&P’s 11 major industrial sectors, real estate closed up 0.06%. (.SPLRCR) Stronger, closed up 2.3%, followed by commodities with a 1.7% gain (.SPLRCM).

On Wednesday, Minneapolis Fed President Neel Kashkari also stressed the need for further rate hikes, setting his own forecast that the policy rate should initially be paused at 5.4%.

“The Fed minutes are a good reminder to investors that interest rates will remain high through 2023. It signals that fighting inflation is the name of the Fed’s game, amid a continued strong jobs market,” said Mike Lowengart. Model portfolio construction at Morgan Stanley Global Investments office in New York.

“The bottom line is that even as we flip the calendar, the market is echoing last year.”

Market participants now see a 68.8% chance of a 25 basis point rate hike from the Fed in February, but see rates below 5% by June. .

Earlier in the day, data showed U.S. job creation in November in a tight labor market, the Federal Reserve sticking to its monetary tightening campaign longer, while other data showed output shrank further in December.

U.S. stock markets were weighed down by worries about a recession due to aggressive monetary policy tightening in 2022, with the three major stock indexes posting their steepest annual losses since 2008.

in the Nasdaq 100 (.NDX) U.S. shares of JD.Com Inc were the top gainers, rising 14.7% on hopes of a post-Covid-19 recovery in China. Microsoft fell 4.4% after a UBS analyst downgraded the stock to a “neutral” rating from a “buy.”

Advancing issues outnumber declining issues on the NYSE by a ratio of 4.30-to-1; On the Nasdaq, a 2.74-to-1 ratio favored the advancers.

The S&P 500 posted five new 52-week highs and no new lows; The Nasdaq Composite posted 84 new highs and 51 new lows.

11.35 billion shares changed hands on U.S. exchanges, compared with an average of 10.83 billion shares over the past 20 trading days, with some weakness due to the holidays.

Reporting by Sinead Carew and Chuck Mikolajczak in New York, Shubham Patra, Amrutha Khandekar and Angika Biswas in Bengaluru; Editing by Shaunak Dasgupta and Jonathan Otis

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