S&P 500 closes higher on Wednesday, Nasdaq adds 2% as investors look past Fed’s rate hike

The major averages settled higher following the Federal Reserve’s latest policy meeting.

The Dow Jones Industrial Average rose 6.92 points, or 0.02% to 34,092.96. The S&P 500 gained 1.05% to 4,119.21, reversing an early decline of almost 1%. Meanwhile, the Nasdaq Composite added 2% to 11,816.32.

— Sarah Min

For investors, the most important takeaway from today’s Fed action is that the focus of 2023 has suddenly shifted from soaring inflation to slowing economic growth, according to Whitney Watson, the deputy co-Head of Fixed Income at Goldman Sachs Asset Management.

The firm believes the correlation between bonds and risk assets will turn less positive, perhaps entering into negative territory.

“The improved hedging properties of bonds combined with higher income and total return potential presents investors with the most opportunistic environment in fixed income markets in more than a decade, even after the strong performance seen in January,” Watson said in a note on Wednesday afternoon.

 — Pia Singh

A recession could be coming, said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. And the rally seen over the first weeks of 2023 could turn as a result

He said the market is “completely ignoring” the potential that the Federal Reserve could raise rates again after taking a pause. Though Zaccarelli called it an unlikely scenario as the central bank will more likely cut rates after an extended pause, he said it’s a risk “worth hedging against.”

“Investors appears willing to fight the Fed – one of the many aphorisms on Wall Street that seasoned traders usually heed – and they do so at their own peril,” Zaccarelli said. “This economy is much stronger than almost everyone believed and it is going to cause the Fed to overshoot on tightening, which will ultimately prove an even bigger risk to markets down the road, but in the meantime we are in a risk-on regime.”

The three major indexes are up so far in 2023 after ending 2022 in the red. The Nasdaq Composite has led the way with a 13.5% gain this year, followed by the S&P 500 and Dow at 7.9% and 3.4%, respectively.

Zaccarelli said to expect a sell-off once investors recognize interest rates will be held at elevated levels for the foreseeable future.

“We wouldn’t get in the way of this rally, but we do believe that a recession is coming, once businesses and the financial markets realize that the Fed is serious about holding rates high for an extended period of time, and once the recession takes hold, markets will sell off yet again,” he said. “The timing of this realization has certainly been delayed; it may not come until the end of this year, or even the beginning of next year.”

— Alex Harring

Despite long-term confidence in Amazon‘s AWS business, Oppenheimer is bracing for 2023 and 2024 revenue estimates for this segment, respectively, to come in 3% and 5% below consensus expectations.

What’s putting pressure on AWS?

A combination of factors, including workload optimization and declining digitization needs as companies return to in-person work, wrote analyst Jason Helfstein in a Tuesday note to clients. Many customers, he added, are also moving toward term-based billings.

“Our channel checks confirm further revenue pressure from all the above, particularly from more term contracts, with peak impacts hitting mid-2023,” Helfstein said. “We estimate a two-year revenue impact of ~15%, but this is essentially a one-time correction.”

Within the past year, Oppenheimer has trimmed revenue estimates for 2023 by 12% to $94 billion from $110 billion. Estimates for 2024, meanwhile, have come down 14% from $128 billion to $106 billion.

Despite these lingering concerns, Oppenheimer remains optimistic about the long-term trajectory for the business, Helfstein said.

— Samantha Subin

There’s a disconnect between what the Federal Reserve is indicating and what the market is expecting ahead, said Ronald Temple, chief market strategist at Lazard.

“The FOMC announcement indicates that additional rate hikes may be appropriate, while markets are only pricing one more increase,” he said. “Taken together with today’s report indicating near record level job openings, I believe markets remain too dovish regarding how high rates will go and how long they will stay there.”

More resistance from the markets will only lead to tighter conditions from the Federal Reserve, he added.

— Samantha Subin

Gold hit a session high not seen since April.

The metal traded as high as $1,956.60 during Wednesday trading. That’s the highest it has traded since April 22, 2022, when gold reached $1,957.80.

— Alex Harring, Gina Francolla

After a relatively slow month for ETF launches in January, the first day of February features a flurry of new launches.

There are at least nine new funds that are scheduled to launch today, according to the New York Stock Exchange.

That includes six new funds from Calvert, an arm of Morgan Stanley Investment Management. The funds range from equities with high scores on ESG metrics to an investment-grade bond ETF.

There are also two new buffer funds from Allianz, expanding a category that was popular in 2022. Those funds will trade under the tickers FEBT and FEBW.

And First Trust, whose managed futures fund delivered positive returns during last year’s bear market, is launching the Multi-Strategy Alternative ETF. That fund trade under the ticker LALT.

— Jesse Pound

Amazon should display continued growth across its advertising and AWS businesses even as e-commerce stocks post a mixed earnings season, Raymond James said.

“We remain constructive on Amazon given expectations for improved eCommerce margins, and relative strength in AWS and advertising,” wrote analyst Aaron Kessler in a note to clients Tuesday.

Kessler expects advertising to post 16% growth and continue gaining momentum. He also anticipated more cloud leadership from the company’s AWS segment, despite near-term headwinds.

At the same time, retail top line growth is expected to slow, to a 3% margin loss as the industry faces a macro slowdown and slight foreign exchange headwinds

Looking ahead, Kessler views guidance for the first quarter as reasonable, helped in part by easing an easing U.S. dollar.

— Samantha Subin

Investors can expect a reversal lower in the S&P 500 this week after the Federal Reserve’s policy meeting, according to Credit Suisse. The firm has a negative outlook on U.S. equities for the next three-to-six months.

The broader market index is holding under a key technical level at 4,101 that is putting the major average under short-term pressure, according to the Swiss investment bank.

“We remain of the view that a bear market is still in place whilst below here and our base case is for a reversal back lower this week,” David Sneddon wrote in a Tuesday note.

To be sure, Sneddon is wary of the risk that equities could rally following the Fed meeting.

“We remain wary of a potentially aggressive short-covering rally if 4101 breaks due to the absence of a hawkish FOMC pushback on Wednesday, given that CFTC positioning data continues to show an aggressive net short amongst speculators. Furthermore, there has been a marked improvement in breadth,” Sneddon added.

— Sarah Min

While traders could be expecting some near-term downside following a strong January rally, Horizon Investments’ Zachary Hill said he sees a “window” for some continued upside.

January was a great month for equities. The S&P 500 notched its best January since 2019, while the Nasdaq Composite had its best January since 2001. On Wednesday, however, the major averages are lower ahead of the Fed decision.

“Normally in a setup like that, I would think that the bias would be to the downside. But, at the same time, you have to contend with a market that is really anxious to put this whole inflation narrative behind us,” Hill said.

“I do think there’s a window where we can continue to go higher here in the near term, kind of inverting that ‘down in the first half, up in the second half’ narrative which seems to be a very popular one amongst strategists on Wall Street as we entered the new year,” he added.

“I think the question we’re asking ourselves is, how long that window lasts?” Hill said.

— Sarah Min

These stocks are among those making the biggest moves in midday trading today:

• Foot Locker — Shares gained 2.6% after Credit Suisse upgraded the stock to outperform from neutral. The retailer could see upside to expected profit in 2024 and 2025 as its strategic plan takes shape, according to the firm.
• Advanced Micro Devices — Shares of chipmaker Advanced Micro Devices jumped 7.9% after the company reported earnings that beat Wall Street’s expectations, according to Refinitiv. AMD also showed relative strength after competitor Intel’s disappointing quarter, analysts said.
• Snap — Shares of the social media company plunged 14% after the firm reported quarterly revenue that missed Wall Street’s expectations, according to Refinitiv. Snap had a rough 2022 as a slowing economy led many companies to slash their digital ad budgets. For a third straight quarter, Snap is declining to provide guidance. Its earnings did beat estimates, however.
• Match — Shares of the online dating company dipped 9% after posting revenue for the recent quarter that fell short of analysts’ expectations, according to FactSet. Match also said it is reducing its workforce by 8% globally and announced revenue guidance for the first quarter that was lighter than what analysts expected.

Click here to see more stocks making midday moves.

— Pia Singh

The benchmark 10-year Treasury yield hugged a level just below 3.5% ahead of the Federal Reserve’s 2 p.m. ET rate decision.

“It’s been anchored there,” said Wells Fargo’s Michael Schumacher of the 3.49% level.

Schumacher said after four of the last five Fed rate decisions, the first move of the 10-year was reversed in the next half hour as Federal Reserve Chairman Jerome Powell began to speak.

“Whatever the statement move is, you go the other way for the press conference,” said Schumacher. Powell speaks starting at 2:30 p.m. ET.

The 10-year could move higher during Powell’s comments if he is as hawkish as market pros expect.

In the fed funds futures market, there was little movement ahead of the Fed. But Schumacher points to the expectation for March, which has 46 basis points priced in. That would include a hike of 25 basis points for Wednesday afternoon and nearly another for the March meeting. A basis point equals 0.01 of a percentage point.

Schumacher said the March contract could be volatile during Powell’s commentary, as traders attempt to extract some guidance on future rate hikes from the chairman’s commentary.

–Patti Domm

Stocks are falling during late-morning trading, but some stocks are notching new highs.

That includes shares of Ulta, trading near levels not seen since it went public in October 2007. United Rentals is also trading at the highest level dating back to its December 1997 IPO.

Here are some of the other stocks touching new highs:

• BorgWarner trading at levels not seen since January 2022
• D.R. Horton trading at levels not seen since January 2022
• Lennar trading at levels not seen since January 2022
• Las Vegas Sands Corp trading at levels not seen since May 2021
• PulteGroup trading at levels not seen since January 2022
• Tapestry trading at levels not seen since November 2021
• Wynn trading at levels not seen since September 2021
• Ameriprise Financial trading at all-time highs back to its IPO in October 2005
• Progressive trading at all-time highs back to its IPO in 1971
• Old Dominion Freight Line trading at levels not seen since January 2022
• TransDigm Group trading at all-time high levels since its IPO in March 2006

— Samantha Subin

Energy was the biggest declining sector in the S&P 500 on Wednesday, with the sector down more than 1.5% on the back of falling oil prices.

Marathon Petroleum shares were down more than 3.4%, while Conocophillips was off by 3.3%.

— Sarah Min

Manufacturing activity contracted again in January, even more than expected, according to the latest ISM survey.

The manufacturing PMI for the month came in at 47.4%, representing the share of companies reporting expansion. That was below the 48.4% reading for December and less than the 48% Dow Jones estimate.

Inventories and new orders registered monthly declines from December, while prices and new orders rose.

—Jeff Cox

Job openings surged in December despite the Federal Reserve’s efforts to cool the labor market, the Bureau of Labor Statistics reported Wednesday.

There were just over 11 million openings for the month, up from 10.44 million in November and more than the 10.3 million FactSet estimate, according to the Job Openings and Labor Turnover Survey. Hires and separations also rose.

There were 1.9 openings for every available worker in December.

Quits, a measure of worker confidence to find new jobs, were little changed for the month near 4.1 million.

—Jeff Cox

AMD has released its latest quarterly results, and most analysts liked what they saw.

The chipmaker reported Tuesday after the bell earnings per share of 69 cents on revenue of $5.6 billion. Analysts expected a profit of 67 cents per share on revenue of $5.5 billion. AMD shares popped about 3%.

However, the semiconductor manufacturer also announced a likelihood of a 10% decline in year-over-year sales for the current quarter, putting a slight overhang on some analyst outlooks for this year. It adjusted its quarterly sales expectations to $5.3 billion, slightly lower than the $5.47 billion projected by Refinitiv.

Those results and guidance come as the company weathers broader headwinds in the semiconductor industry. A protracted slowdown in the global PC market, decreased overall demand for finished electronics, and a glut of supply is challenging AMD and other chipmakers. 

On Wall Street, several analysts reiterated AMD shares as a buy despite the continued overhangs in the chipmaking industry, and project upside for the stock.

Stocks opened lower Wednesday as investors awaited the latest policy decision from the Federal Reserve.

The Dow Jones Industrial Average shed 234 points, or about 0.7%. S&P 500 was down nearly 0.3%. Meanwhile, the Nasdaq Composite was 0.2% lower.

— Sarah Min

Snap may have trouble keeping up with ever-rising competition going forward, according to UBS.

Analyst Lloyd Walmsley downgraded the social media company to neutral from buy. He also reiterated a price target of $10, which implies downside of 13.5% from Tuesday’s close, and trimmed his 2023 revenue outlook on Snap.

“We see increasing  competition  everywhere,” analyst Lloyd Walmsley wrote in a client note on Wednesday.  “While  the  focus  has  been  on  TikTok,  Meta  is ramping Reels monetization (feedback has been +) and YouTube is scaling Shorts (atop Google’s  ad  platform). Given the  magnitude  of  competition  and  Snap’s relatively subscale nature, we see risk to revenue acceleration. We roll our PT to ’24 EV/revenue (from ’23 prev) and trim our multiples to 3x (from 4x previous) reflecting slower growth.”

Snap shares tumbled more than 15% in the premarket on the back of those results.

CNBC Pro subscribers can read more about his downgrade here.

Companies added fewer positions than expected in January, according to the ADP.

Private payrolls rose by 106,000 in January, lower than the 190,000 estimate from the Dow Jones, as well as the 235,000 reported for December, the ADP said Wednesday.

— Sarah Min

These names are among those making the biggest moves in the premarket:

• Peloton — The fitness equipment maker gained more than 3% in the premarket after reporting fiscal second quarter revenue that beat expectations. Peloton said its net loss narrowed year over year and subscription revenue was higher than sales of the product.
• Western Digital — Western Digital fell more than 2% after reporting an earnings miss after the bell Tuesday. The company also beat on revenue and said it anticipates revenue in the upcoming quarter to be lower than previously guided.
• Brinker International — The casual dining chain was up 1.4% in the premarket after reporting adjusted earnings of 76 per share, compared to StreetAccount’s estimate of 52 cents for the fiscal second quarter. Revenue was $10.2 billion versus the $991.7 million expected by analysts.

Click here to see more premarket movers.

— Michelle Fox

Peloton Interactive shares advanced more than 4% in Wednesday premarket trading after the fitness equipment company said its net loss narrowed year over year. What’s more, the firm’s subscription revenue was higher than sales of its fitness products for a third straight quarter.

CEO Barry McCarthy called the firm’s results a “turning point” for the business.

Foot Locker gained 2.5% following an upgrade to outperform from neutral by Credit Suisse.

Analyst Michael Binetti said the company could see potential upsides to earnings in 2024 and 2025 due to strategic changes to the company, while noting it would likely have a tough 2023 compared with what analysts’ previously expected.

He also raised his price target by $24 to $62. Binetti’s new target implies an upside of 42.5% over where the stock closed Tuesday.

“We realize we may be early, and we do expect FL to guide 2023 below current Consensus,” he said in a note to clients Wednesday. “We’d be willing to lean-in to any stock dislocation focused on near-term results based on our improving confidence that FL has a much more profitable path forward in 2024 and 2025—which we believe will become evident in coming months as Foot Locker starts to lay out its multi-year plan.”

DoubleLine Capital founder Jeffrey Gundlach is among the investors who expects the Federal Reserve and Chairman Jerome Powell to reaffirm their willingness to hike rates, even as inflation has cooled in recent months.

“I suspect Fed messaging tomorrow will push back against the pivot narrative and thereby current bond market pricing,” Gundlach said on Twitter Tuesday night. “Should be interesting.”

The 2-year Treasury yield, which is highly sensitive to Fed hikes, was trading just below 4.2% on Wednesday morning. The yield ended December above 4.4%. Yields move opposite of price.

— Jesse Pound

UBS analyst Lloyd Walmsley downgraded Snap to neutral from buy citing increasing competition for the social media company. “We see increasing  competition everywhere,” analyst Lloyd Walmsley wrote in a client note.

The downgrade comes after Snap reported fourth-quarter results that largely missed expectations.

The U.S. Federal Reserve, European Central Bank and Bank of England are all expected to hike interest rates once again this week, as they make their first policy announcements of 2023.

Nick Chatters, fixed income manager at Aegon Asset Management, said that the task for market watchers is to “telegraphically infer” from this week’s press conferences what Fed Chairman Jerome Powell and ECB President Christine Lagarde are thinking about the “terminal rate,” and how long they intend to keep monetary policy restrictive before starting to normalize.

“From a central bank perspective, we are beginning to see a divergence in interest rate intentions. The Federal Reserve recently signalled that it will only raise interest rates by 0.25% at this week’s meeting. Perhaps this will mark the end of the hiking cycle,” said David Dowsett, global head of investments at GAM Investments.

“By contrast, the European Central Bank, in my view wrongly, is still quite firmly signalling two further 0.5% hikes. From a currency standpoint, this expectation is driving significant interest in non-U.S. assets at the moment.”

Read the full story here.

– Elliot Smith

Morgan Stanley’s Mike Wilson is still waiting for a signal to buy U.S. equities.

“For U.S. equities, I think it’s gonna be a combination of when we think the earnings now reflect closer to reality, and valuations reflect that too,” the chief investment officer told CNBC’s “Fast Money” on Tuesday. “It’s a two-edged sword.”

The Federal Reserve, which is widely expected to hike interest rates by 25 basis points Wednesday, will play a role in when that signal comes, although Wilson expects the central bank to continue cutting rates ‘”long after” the market reaches its bottom.

“There’s no incentive for [Fed Chair Jerome Powell] to get off the train too early,” he said. “That would be a mistake.”

— Samantha Subin

Stock futures slipped Tuesday evening as investors looked ahead to the Federal Reserve’s Wednesday meeting. The moves came after stocks jumped in the regular trading session to finish January on a strong note.

Futures tied to the Dow Jones Industrial Average shed 22 points or 0.06%. S&P 500 futures and Nasdaq Composite futures were down 0.13% and 0.31%, respectively.

—Carmen Reinicke