The U.S. stock market exhibited fluctuations as the Federal Reserve opted to hold key interest rates steady within the range of 5.25% to 5.50%. This decision came alongside a statement emphasizing that despite some progress, inflation remained at elevated levels. Prior to the Federal Reserve’s announcement, the stock market had already shown signs of weakness, particularly in the technology sector, following disappointing quarterly results from Alphabet Inc., the parent company of Google.
Following the announcement, all three major U.S. stock indexes initially experienced declines. However, they later managed to recoup some of their losses, keeping them on track to achieve monthly gains. Federal Reserve Chair Jerome Powell conveyed confidence that rate reductions could be considered once there is solid confirmation that inflation is on a sustainable downtrend.
Nevertheless, the Federal Open Markets Committee (FOMC) stated that it did not anticipate reducing the target range for interest rates until it gained more confidence that inflation is moving closer to its 2% annual target. Market participants were hopeful for a more dovish stance from the Federal Reserve, with expectations of potential rate cuts in the near future. However, the FOMC’s statement did not provide such indications.
Financial analysts noted that while further rate hikes seemed improbable based on the Federal Reserve’s statement, investors should still brace themselves for higher interest rates for an extended period, given that the necessary economic data for rate reductions had not yet materialized. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite exhibited varying degrees of movement throughout the day. The Dow posted a slight gain, the S&P 500 saw a decline, and the Nasdaq experienced a notable drop.
Meanwhile, the fourth-quarter earnings season was in full swing, with a substantial number of S&P 500 companies scheduled to release their financial results. Up to that point, a significant percentage of companies had surpassed market expectations. Notably, Alphabet Inc. suffered a 6.4% decline in its shares due to disappointing ad sales and increased capital spending aimed at enhancing artificial intelligence capabilities. On the other hand, Microsoft Corp. reported results that exceeded analyst expectations.
New York Community Bancorp faced a significant challenge as its shares plummeted by 37.9%. The bank announced a surprise loss and decided to reduce its dividend. This event had a ripple effect, impacting the KBW Regional Bank index, which slid by 3.7%. Additionally, a series of economic indicators released on that day, including fourth-quarter employment costs and ADP’s employment index, suggested some easing in the labor market.
This labor market condition was viewed by the Federal Reserve as a necessary precondition for bringing inflation down to its 2% annual target. In terms of market performance, declining issues outnumbered advancers by a ratio of 1.4-to-1 on the NYSE, with 284 new highs and 46 new lows. On the Nasdaq, 1,831 stocks rose while 2,339 fell, with declining issues outnumbering advancers by a ratio of about 1.3-to-1. The S&P 500 recorded 59 new 52-week highs and 2 new lows, while the Nasdaq recorded 119 new highs and 105 new lows.