S&P 500 jumps as Fed’s Bostic rules out support for return to aggressive Fed hikes

(C) Reuters.

By Yasin Ebrahim

Investing.com — The S&P 500 rallied after paring losses Thursday as Treasury yields eased from session highs after Atlanta Federal Reserve president Raphael Bostic ruled out backing a return to more aggressive Fed rate hikes and said the central bank pause by mid-to-late summer.

The S&P 500 rose 0.11%, the Dow Jones Industrial Average gained 0.57%, or 186 points, and the Nasdaq Composite was down 0.1%.

“Right now, I’m still very firmly in the quarter-point move camp,” Bostic said, in a roundtable with reporters on Thursday.

The remarks eased worries that the fed could be forced to revert to more aggressive 50 basis point rate hikes following strong economic data.

Data showing a jump in labor costs in the fourth quarter and fewer than expected initial jobless claims pushed the 10-Year and 2-Year Treasury yields to levels not seen in more than a decade.

“Whatever the reason that jobless claims have remained subdued, the bottom line is that labor supply is not increasing in any meaningful way, and there is no evidence that this will change any time soon,” Jefferies said in a note.

The strong data and hawkish remarks from several Fed members earlier this week have forced some on Wall Street to price in more aggressive Fed rate hikes and lower earnings.

Wells Fargo pushed back its call on recession and now expects an economic downturn in the second half of the year, and said it expects interest rates to stay higher for longer.

“We’ve reduced our year-end 2023 target for the S&P 500 Index and raised our target range for the federal funds rate to 5.25% to 5.5%,” it added.

Financials were the biggest drag on the market, with regional banks leading to the downside despite a surge in yields, which tends to boost margins on lending.

Principal Financial (NASDAQ:PFG), Signature Bank (NASDAQ:SBNY), and Zions Bancorporation (NASDAQ:ZION) were among the biggest losers on the day.

Cryptocurrency bank Silvergate Capital Corp (NYSE:SI), meanwhile, extended losses after plunging 55% after delaying its annual report and raised concerns about its ability to survive following the impact of the collapse of FTX and the slump in the crypto market.

Utilities and consumer staples were among the top gainers on the day, with the latter also helped by a 5% jump in grocery chain Kroger.

Kroger (NYSE:KR) reported better-than-expected guidance that overshadowed mixed fourth-quarter results as revenue fell short of Wall Street estimates.

Macy’s (NYSE:M), meanwhile, reported quarterly earnings that beat expectations, sending the department store chain’s shares more than 10% higher.

“We were encouraged to see the well-controlled inventory balance entering the year, and believe that strong momentum and clean stocks suggest an opportunity for Macy’s to generate a healthier profit than peers for the year,” Goldman Sachs said in a note.

Salesforce (NYSE:CRM) surged more than 12% after reporting fourth-quarter results and guidance that topped Wall Street estimates and that “will silence the doubters,” Wedbush said amid ongoing activist investor interest in the cloud-based software company.

Advanced Micro Devices (NASDAQ:AMD), meanwhile, climbed 2% on reports that activist investor Dan Loeb’s Third Point had taken a passive stake in the chipmaker.

In other news, Tesla (NASDAQ:TSLA) detailed plans to lower costs at its investor day on Wednesday, but failed to provide an update on plans to launch a more affordable electric car, sending its shares more than 6% lower.

“[W]e believe many investors were hoping for more specifics on when a third generation vehicle could be shipping, and therefore the lack of clarity beyond the comment that they’re working as fast as they can and it could be in the next couple of years is likely to be viewed as a disappointment to some,” Goldman Sachs said in a note.