Markets rise after Fed raises its interest rate 25 basis points

Dow finished up 6 after wild trading in the PM, advancers over decliners over 3-1 & NAZ went up 231.  The MLP index was fractionally higher to 231 & the REIT index was up 4+ to the 411s.  Junk bond funds were in demand & Treasuries saw buying which reduced yields.  Oil dropped 2+ to the 76s & gold was off 4 to 1941 (more on both below).

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The Federal Reserve raised its benchmark interest rate by a qtr percentage point & gave little indication that it is nearing the end of this hiking cycle.  Aligning with market expectations, the rate-setting Federal Open Market Committee (FOMC) boosted the federal funds rate by 0.25 percentage point.  That takes it to 4.5-4.75%, the highest since 2007.  The move marked the 8th increase in a process that began in Mar 2022.  By itself, the funds rate sets what banks charge each other for overnight borrowing, but it also spills thru to many consumer debt products.  The Fed is targeting the hikes to bring down inflation that, despite recent signs of slowing, is still running near its highest level since the early 1980s.  The post-meeting statement noted that inflation "has eased somewhat but remains elevated," a tweak on previous language.  Markets, however, were looking to this meeting for signs that the Fed would be ending the rate increases soon.  But the statement provided no such signals.  The document included language noting that the FOMC still sees the need for "ongoing increases in the target range."  Market participants had been hoping for some softening of the phrase, but the statement, approved unanimously, kept it intact.  The statement did alter one part when describing what will determine the future policy path.  Officials said they would determine the "extent" of future rate increases based on factors such as the effects so far of the rate hikes, the lags in which policy has an impact & developments in financial conditions & the economy.  Previously, the statement said it would use those factors to determine the "pace" of future hikes, a possible nod that the committee sees an end to the increases somewhere, or at least a continuation of smaller moves ahead.  Otherwise, the statement remained intact from previous messages as the Fed continues its efforts to arrest inflation.

Fed raises rates a quarter point, expects ‘ongoing’ increases

Hiring by US companies slowed sharply in Jan, the latest sign that the historically tight labor market is finally starting to cool off, according to the ADP National Employment Report.  Companies added 106K jobs last month, missing the 178K gain that was predicted.  It marked a major drop from the 235K gain recorded in Dec & is the worst month for job creation since Jan 2021.  The weaker-than-expected report comes as the Federal Reserve wages the most aggressive fight since the 1980s to crush inflation & slow the labor market with a series of rapid interest rate increases.  Still, the slowdown in hiring may not be indicative of the labor market softening, but rather a one-off due to disruptions from extreme weather.  "In January, we saw the impact of weather-related disruptions on employment during our reference week," said Nela Richardson, the chief economist of ADP.  "Hiring was stronger during other weeks of the month, in line with the strength we saw late last year."  The bulk of the gains in Jan stemmed from the leisure & hospitality industry, which added 95K new workers.  Other industries that saw payroll growth last month included financial activities (30K), manufacturing (23K) & education & health services (12K).  The biggest losses, meanwhile, were in the trade, transportation & utilities sector, which saw payrolls decline by 41K.  Construction lost 24K jobs, & natural resources & mining declined by 2K.  By size, only large & medium businesses saw job gains last month, with a combined increase of 192K.  Small businesses, which have struggled the most with the inflation crisis, lost 75K workers.  The losses were most pronounced in small businesses that employ 1-19 workers.  With job growth relatively lackluster in Jan, so were the pay increases that workers received, according to the report, which is now conducted alongside Stanford Digital Economy Lab.  Wages were unchanged in Jan from the previous month, although they are still up 7.3% from one year ago.

Job creation by US companies tumbles to lowest level since January 2021

US job openings unexpectedly surged at the end of 2022 as demand for workers increased, despite an aggressive campaign by the Federal Reserve to raise interest rates & cool the labor market.  The Labor Dept said that there were more than 11M job openings in Dec, a marked increase from the 10.5M reported the previous month.  The forecast expected openings to fall to 10.3M.  The number of available jobs has now topped 10M for 14 consecutive months; before the pandemic began in Feb 2020, the highest on record was 7.7M.  There are roughly 1.7 jobs per unemployed American.  The Federal Reserve closely watches these figures as it tries to gauge labor market tightness & wrestle inflation under control.  The stronger-than-expected figure indicates that demand for employees still far outpaces the supply of available workers.  The number of Americans quitting their jobs, meanwhile, was largely unchanged at 4.1M, roughly 2.7% of the workforce, indicating that workers remain confident they can leave their jobs & find employment elsewhere.  Switching jobs has been a windfall for many workers over the past year, with employees seeing an average 7.7% annual wage growth rate in Nov from the previous year – up from the 5.5% received by workers who do not switch jobs, according to the Atlanta Fed.

Job openings unexpectedly surge to 11 million in December

Gold futures settled lower, then extended their losses into the electronic trading after the Federal Reserve announced a hike in the fed funds rate of 25 basis points to the 4.5% to 4.75% range, as expected.  Apr gold was at $1939 an ounce in electronic trading shortly after the announcement.  That follows a settlement at $1942 an ounce, down $2, for today's session.

Gold prices end lower, extend losses after the Fed rate decision

Oil futures fell sharply, with US benchmark prices settling at their lowest in about 3 weeks.  The Energy Information Administration reported a 4.1M-barrel climb in US crude supplies, marking a 6th straight week of increases, along with weekly gains in gasoline & distillate stockpiles. Oil prices continued to trade lower after the Federal Reserve announced a qtr-percentage-point interest-rate hike, as expected.  US benchmark West Texas Intermediate crude for Mar fell $2.46 (3.1%) to settle at $76.41 a barrel.  Based on the front-month contract, prices settled at their lowest since Jan 10.

U.S. oil futures settle at their lowest in 3 weeks

The stock market rallied from a steep loss after the rate hike was announced.  Then Powell said that we’re talking about a couple more rate increases.  That comment brought out the bulls.  But selling into the close erased the gain, bringing Dow to finish near breakeven.  The stock market is volatile.  Meanwhile safe haven gold continued flattish.

Dow Jones Industrials