Dow cuts gains after Fed meeting minutes signal more rate hikes ahead

Market needs support from Fed before the rally can commence, says NewEdge's Cameron Dawson

Stocks fell from their highs Wednesday but remained in positive territory after Federal Reserve meeting minutes showed that the central bank will remain aggressive in raising rates to tame high inflation.

The Dow Jones Industrial Average rose 62 points, or 0.19%, but was off highs of the day. The S&P 500 and the Nasdaq Composite also dipped slightly but remained up 0.59% and 0.55%, respectively.

Stocks slipped when minutes from the Federal Reserve’s December meeting showed hawkish sentiment from the central bank even as it delivered a half-percentage point rate hike, smaller than previous increases. They also showed the Fed intends to hold higher rates in place until there’s sufficient data proving inflation has cooled.

“We’ve cut the gain in half in stocks. I think it was the reinforcement that the Fed doesn’t want the markets to get ahead of themselves in celebrating a slowdown in the pace of rate increases because rates are going to stay higher for longer,” said Peter Boockvar of Bleakley Financial Group. 

“The Fed is juggling a lot of balls here in the sense they want to slow the pace of rate increases but they don’t want the market to start a party, which would then ease financial conditions,” he added. “They want to tighten to crush inflation but they don’t want to cause a recession.”

Earlier in the day, stocks rose on a combination of economic data and following a dismal first trading day of the year on Tuesday.

The November Job Openings and Labor Turnover report, or JOLTS, came in slightly better than anticipated, signaling continued labor market strength amid the central bank’s rate hikes to tame inflation. The ISM manufacturing index, on the flip side, showed a contraction in the sector after 30 months of expansion, signaling that interest rate increases may be working to slow the economy.

Next, investors will be looking to Friday’s jobs report for further information about how the economy is faring amid the Fed’s rate hikes.

“This is very much wait and see mode,” said Art Hogan, chief market strategist at B. Riley Financial. “After wrapping up a year that was pretty terrible on all fronts, there’s always going to be trepidation by investors to put money to work and we’re seeing that in real time at least in the first two trading days.”

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