S&P 500 Rises Amid Volatile Trading Following Fed Minutes Indicating Extended High Rates

By Yasin Ebrahim

The S&P 500 saw an increase on Wednesday, although investors faced significant fluctuations as the Federal Reserve’s December meeting minutes indicated that higher interest rates are likely to persist. This comes amid economic data showing a tight labor market, raising concerns about potential inflation increases.

The S&P 500 rose by 0.7%, while the Dow Jones gained 116 points, or 0.4%. Additionally, the Nasdaq climbed by 0.75%.

According to the released minutes from the Fed’s December meeting, officials concurred that a prolonged period of restrictive monetary policy is essential to address "unacceptably high" inflation. These insights heightened fears regarding the possibility of sustained high interest rates, coinciding with data that revealed a slower-than-anticipated decline in labor demand.

The latest Job Openings and Labor Turnover Survey (JOLTs) from the U.S. Labor Department indicated that job openings in November decreased to approximately 10.5 million, a decline that was less than the anticipated reduction to 10.0 million. Jefferies commented that the report was “very strong” and warned that without a "significant decrease in labor demand," the Fed would be hesitant to pause or cut rates.

Despite these developments, U.S. Treasury yields continued to struggle and hesitated to reflect more aggressive Federal Reserve rate hikes.

Banking stocks remained resilient despite the drop in Treasury yields, which typically pressure net interest margins. Investors are looking forward to the start of the upcoming quarterly earnings season. According to Wedbush, “Fourth quarter earnings should generally be decent for most banks, as elevated rates and solid loan growth continue to support net interest income in the short term, although this positive momentum may begin to wane.”

Citigroup Inc., SVB Financial Group, and Zions Bancorporation led the financial sector’s gains.

In the consumer discretionary sector, Tesla surged nearly 5% after experiencing a drop of 12% the previous day. Additionally, Bath & Body Works jumped by 9% following an upgrade in price targets from analyst firm Piper Sandler.

Travel and leisure stocks gained traction as cruise companies saw a boost after Carnival announced it would raise prices for U.S. and European guests starting April 1. Carnival Corporation shares rose by 9%, while Royal Caribbean Cruises and Norwegian Cruise Line Holdings saw increases of more than 7% and 4%, respectively.

On the other hand, Microsoft Corporation experienced a decline of about 5% after UBS downgraded the stock from a buy to neutral, highlighting demand challenges in its office and cloud services.

The semiconductor sector was supported by a surge in Micron Technology, which climbed 7% following positive comments from Daiwa regarding the potential for higher memory prices, fueled by expectations of increased demand in the latter half of the year.