The three main indices of the U.S. stock market performed higher on Wednesday as investors expected the Federal Reserve to slow rate hikes.
The S&P 500 closed at 4,027.26, going stronger by 23.68 points or 0.59. The Dow Jones gained 95.96 points or 0.28 percent, concluding the trading day at 34,194.06. Meanwhile, the Nasdaq Composite experienced the highest raise among the three major indices at 110.91 points or 0.99 percent, closing at 11,285.32.
Stocks with heavy weightage contributed to the gain in those indices. Tesla Inc’s shares grew by 5.2 percent after Citigroup upgraded its stock rating from “sell” to “neutral.” Meta, Amazon and Microsoft saw a gain between 0.4 and 0.7 percent.
On the other hand, some companies reported share declines that day. Nordstrom Inc tumbled 7.1 percent after the retailer lowered its prices to attract customers, affecting its profit forecast. Autodesk Inc’s shares fell 6.8 percent after the company projected lower revenue in Q4.
The energy sector within the S&P 500 plunged 1.4 percent after the G7 nations considered the price of Russian sea-borne oil, which ranged from $65 to $70 per barrel bandwidth.
However, the index’s decline was moderated by the shares of farm equipment producer Deere & Co, which jumped 7.1 percent following higher-than-projected quarterly profit.
Heading to Thursday, the stock market is expected to see a decrease in trading volume due to the approaching Thanksgiving holiday. The market will only be open for half a day this Friday.
Analysts predicted that the stock market would see a gain for the second consecutive month this November. They said it is due to signs of cooling inflation, higher-than-predicted company earnings and expectations of a policy pivot by the Fed.
According to analysts, a drop in the 10-year Treasury yield benefitted the stock market. It dropped following a higher-than-expected unemployment benefits application rate last week, indicating an economic slowdown. Recent data, however, showed mixed results.
Data revealed that business activity in the U.S. contracted for the fifth consecutive month in November. On the other hand, consumer sentiment was higher, as shown by an increase in home sales last month.
Cetera Investment Management investment director Brian Klimke said the market was “looking for clues of a pivot” from the Fed.
"For the most part, they're (investors) optimistic that the Fed members are probably going to show signs that the pace of rate hikes might decrease,” Klimke added.
Fed’s November meeting minutes
The November meeting minutes published by the Fed on Wednesday further increased the expectation of a smaller rate hike in the next FOMC meeting.
According to the minutes, a smaller hike size will allow the Fed to evaluate the impact of its approach. Investors are optimistic that the Fed will increase the rate by half a percentage point.
Despite the hint of loosening monetary policy, Fed officials said they still noticed few signs of stubborn inflation. Several committee members at the central bank raised concerns about the impact of the aggressive pace on the economy. They said decreasing the aggressive pace “could reduce the risk of instability in the financial system.”
Fed officials also reminded the public to focus not only on the interest rate hike size but also on the end rate. It has been predicted that the Fed funds rate can go up to five percent in 2023.