Article published at 9:10 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Investors gain confidence in Fed’s fight against inflation
- 10-year yield drops below critical 5%
- Generac shares take off with Amazon deal
As we’ve said many times, give the markets a sense of certainty and they tend to respond accordingly. The market direction is shifting with all three major indices moving to the upside as Treasury yields and crude oil prices slip in early trading after the Federal Reserve raised interest rates and vowed to curtail inflation.
Investors are buying into Wednesday’s sharp slump immediately after the Fed boosted interest rates to a range of 3.75% to 4.0% and indicated another hike could be coming this year. The Dow Jones Industrial Average, which lost more than 630 points, is getting some of them back, rising 0.35% while the Nasdaq Composite is adding 1.4% and the S&P 500 Index tacks on more than 0.85%.
The Federal Open Market Committee (FOMC) voted unanimously to raise interest rates and the vast majority of members forecast another increase by the end of the year. In its short statement, the FOMC noted economic activity is expanding and added, “While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient.”
Though the rate hike was widely expected, investors were likely moved by Chairman Kevin Warsh’s hawkish views. “The plain fact is that inflation is too high and has been for too long,” he said during a press conference after the increase was announced.
The FOMC’s aggressive stance on curbing that spending and higher prices is upping investor confidence in purchasing Treasury bonds. When prices go up, yields fall, and the 10-year yield is sitting at about 4.94%, below the critical 5% level it had exceeded in recent sessions. Also helping is the pullback in the price of WTI Crude Oil, which is falling below $100 a barrel, a 2.5% decline amid reports that the attack on the Saudi pipeline was not as severe as expected.
Elsewhere, shares of Generac are vaulting above 33% in early trading after the power equipment maker inked an $8 billion long-term pact to supply Amazon with backup generators for new data centers.
Homebuilder Lennar offered a cloudy housing industry picture late Wednesday when it reported third-quarter earnings that fell far short of Wall Street’s expectations. It was the third straight quarter of flagging revenues, reflecting “the nature of the environment in which we are operating, which has deteriorated,” the company said in its earnings release.
Citing rising mortgage rates, inflation, geopolitical tension and higher oil prices, the company said “consumer confidence has declined” and has driven “more consumers to slow their purchase decision.” Shares dipped immediately after earnings were announced but are inching their way into positive territory in early trading thanks to the broader market headwinds.
Airline stocks are in flight mode as executives on Wednesday warned they may cut capacity and hike fares because of elevated jet fuel prices. At a Morgan Stanley conference, American’s chief executive estimated the airline will face an extra $1 billion in fuel costs in fourth-quarter expenses. United’s chief financial executive said it will cut flights in December and Southwest’s said it already has withheld planned seat growth, but noted travel demand was robust. United and American shares are headed higher by nearly 3% while Southwest is adding 2%.
Happy Trading!
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