Stock Market Today: Powell Rate Comments Rupture Morning Rally
The market didn't flinch at the Fed's nod toward a March rate hike, but stocks swooned after Chair Powell said there's "quite a bit of room to raise interest rates."
The stock market on Wednesday weathered the Federal Reserve's suggestion that it would begin raising its benchmark interest rate in March, but it folded when the central bank's chair indicated the Fed could be more aggressive about rate hikes than previously thought.
The Federal Open Market Committee concluded its two-day meeting with an afternoon statement saying that "with inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate."
That was largely expected by strategists and resulted in little movement from the major indexes, which had built up considerable gains throughout the morning. However, shortly thereafter, Fed Chair Jerome Powell said during a press conference that "I think there's quite a bit of room to raise interest rates without threatening the labor market."
That might have spooked investors already expecting multiple rate hikes this year (Kiplinger currently projects four). Stocks quickly turned tail, hemorrhaging most if not all of their early gains.
The Nasdaq Composite, for instance, watched a 3.4% intraday gain evaporate into a marginal improvement to 13,542. The Dow Jones Industrial Average (-0.4% to 34,168) and S&P 500 (-0.2% to 4,349) watched green ink turn to red.
"The stock market is especially vulnerable to higher rates and the removal of the tailwind that the Fed's asset purchases have provided for the past two years," says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, a registered investment advisor. "We believe the economy will stay out of recession and the bull market in stocks will continue this year, but we are concerned that the volatility we have already witnessed this month will increase in the months ahead and would exercise caution in the near term."
Other news in the stock market today:
- The small-cap Russell 2000 finished solidly in the red, off 1.4% to 1,976.
- Rising tension over a potential Russian invasion of Ukraine sent U.S. crude oil futures surging 2% to $87.35 per barrel – their highest settlement since October 2014.
- Gold futures fell 1.2% to finish at $1,829.70 an ounce.
- Bitcoin, which topped out around $39,000 today, dropped back to $37,051.31 – a 0.4% improvement from yesterday's prices. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
- Microsoft (MSFT) – which declined last night in after-hours trading following the release of its earnings report – ended today up 2.9%, the best of all 30 Dow Jones stocks. While investors were initially disappointed in slower year-over-year cloud services revenue growth (46% vs. the 50%+ growth it has seen over the previous four quarters), they eventually cheered the tech giant's higher-than-expected adjusted earnings of $2.48 per share and total revenue of $51.7 billion for its fiscal second quarter. UBS analyst Karl Keirstead (Buy) also pointed to the company's solid current-quarter revenue guidance as "the key factor explaining the sudden reversal of the stock in the after-market." In its fiscal third quarter, MSFT sees revenue of $48.5 billion to $49.3 billion versus a consensus estimate for $48.2 billion.
- Corning (GLW) was another big post-earnings winner, popping 11.2% after releasing its most recent results. In its fourth quarter, the specialty glassmaker reported adjusted earnings of 54 cents per share on $3.7 billion in sales, beating analysts' estimates. CFRA Research analyst Keven Young maintained a Buy rating on GLW after earnings. "We are encouraged by investments in fiber infrastructure as operators expand capacity, capability and access," he says. "In addition, we expect higher TV units and screen sizes (glass at retail to grow high-single digits in 2022) to aid Display growth."
When Will Growth Get a Break?
No respite for the weary, as todays rally in recently maligned growth stocks was more or less snuffed by the Fed. But it's possible that the selling in growth is becoming somewhat overdone – or at least that Wall Street is throwing a few babies out with the bathwater.
"Many investors assume that higher interest rates will dent future stock market returns, but investors should not assume a direct correlation, since stock price movements are far more complicated and are never dependent on one cause," says Julian Koski, chief investment officer at asset management firm New Age Alpha. "Our advice to investors is to focus less on what the Federal Reserve may or may not do and instead focus more on the individual stocks they own and whether these stocks can deliver on the growth expectations that are baked into their valuations."
We've mentioned it before: Investors looking to buy explosive stocks in a diversified way should perhaps consider growth funds with an eye toward later in 2022 and well beyond, but pickers of individual growth stocks might be rewarded.
You can begin your search category by category, tapping top picks in growth-friendly sectors such as technology and consumer discretionary. But if you're sector-agnostic and just want to go where the highest-quality, high-ceiling opportunities are, consider our look at 15 of the market's top growth ideas.