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U.S. stocks reversed earlier losses after the release of minutes from the Federal Reserve’s most recent meeting showed the central bank remains on track to keep lifting interest rates. The Fed couldn’t spook the market this time.
The
Dow Jones Industrial Average
gained 69 points, or 0.2%. The
S&P 500
rose 0.4%, and the tech-heavy
Nasdaq Composite
advanced 0.4%.
The minutes revealed that members of the Federal Open Market Committee see an interest rate hike of a half a percentage point to three quarters in the next meeting. The minutes also said there is “the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.”
That all confirms something already known. The Fed will lift rates as much as it needs to bring inflation down. It is possible that the Fed is now about to pull forward much of its planned interest rate increases, which could slow down later on.
“The Fed used the June meeting to remove all doubt they [would] do what was necessary to restore price stability,” wrote Jamie Cox, Managing Partner for Harris Financial Group. “In so doing, [it] seeks to avoid the need for even more restrictive policies in the future.”
That is the hope.
The Fed even acknowledged exactly that point. The minutes said that FOMC members noted that interest rate and bond markets have already reflected much of the tighter policy.
The 10-year Treasury yield, a barometer of the market’s expectation for longer-term economic growth, has dropped to 2.91% from a multiyear peak of about 3.5%, hit in mid-June. The price of WTI crude oil is down about 17% in the past month to under $99 a barrel. The 10-year yield gained Wednesday, but fell over that longer period.
“The markets have raised the white flag in surrender to accepting a recession,” said Jim Caron, portfolio manager and chief fixed income strategist at Morgan Stanley Investment Management.
With the a potential recession looming and bond yields remaining down, tech stocks kept rallying. While the Nasdaq posted a small gain, the Technology Select Sector SPDR Exchange-Traded Fund (XLK) rose 0.9%.
Tuesday, the Nasdaq jumped almost 2%, bringing the S&P 500 into the green with it. That rally came as markets grew more fearful about an economic slowdown—or recession—which makes faster growing tech stocks more attractive and more economically sensitive ones less appealing.
So the rally is on for now, but the July 13 consumer price index will be crucial. If the index sees an above 8% gain, it would be the second consecutive such reading. The Fed could then become more aggressive in lifting rates, putting even more pressure on economic demand.
“If inflation hasn’t peaked, then all bets are off,” Caron said. “There could be some residual strength in inflation that’s gong to keep the Fed on edge, keep yields high. It’s gong to dictate the narrative in markets.”
Here are some stocks on the move Wednesday:
Amazon
(ticker: AMZN) rose 0.7% after the company struck a deal with
Just Eat Takeaway.com
(JET.U.K.) to give its U.S. Prime users a one-year membership to food delivery group Grubhub.
Rocket Cos.
(RKT) stock gained 4.2% after getting upgraded to Overweight from Equal Weight at Wells Fargo.
RingCentral
(RNG) stock dropped 9.7% after getting downgraded to Hold from Buy at Needham.
Union Pacific
(UNP) stock dipped 0.2% after getting downgraded to Neutral from Positive at Susquehanna.
Moelis & Co
.
(MC) stock dropped 2.1% after getting downgraded to Neutral from Buy at UBS.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com
Read More: Stocks Gain After Release of Fed Minutes