Stocks pushed higher on Tuesday, rising ahead of a key Federal Reserve interest rate decision due out the following day. Strong quarterly results from the likes of General Motor (GM) gave Wall Street a lift.
The Nasdaq Composite (COMP.IND) closed +1.7%, the S&P 500 (SP500) ended +1.5% and the Dow (DJI) finished +1.1%.
Bouncing back from a 2% slide the previous day, the Nasdaq climbed 190.74 points to close at 11,584.55. The Dow advanced 368.95 points to finish at 34,086.04, while the S&P 500 rose 58.83 points to end at 4,076.60.
All 11 S&P sectors participated in the broad-based rally. The advance was led by larger-than-2% surges in the Consumer Discretionary and Materials spaces. Real Estate and Industrials were notable gainers as well.
“Fairly robust Q4 earnings, receding inflation, and Q4 GDP above market expectations have fueled the [recent] rally,” Andrew Hecht told Seeking Alpha. “However, the most bullish factor was likely the overwhelmingly bearish consensus sentiment coming into 2023, leading to short-covering and some investors’ fears of missing the rally.”
Hecht added: “The market action assumes the Fed will curb its enthusiasm for rate hikes in 2023, but a hawkish response from the central bank could ignite selling. Expect volatility, and you will not be disappointed!”
Bouncing back from a setback the day before, stocks drifted higher throughout the Tuesday’s trading. Investors were looking ahead to the Fed announcement on Wednesday. Experts are widely expecting a 25-basis-point increase in interest rates, but Wall Street will focus on the central bank’s commentary about future monetary policy.
Meanwhile, earnings news continued to pour in. General Motors (GM) was in focus on Tuesday, with the automaker handily beating analysts’ expectations. This sparked an 8% rise in the stock.
On the other side of the spectrum, McDonald’s (MCD) slipped in the wake of its quarterly report, amid concerns that inflation pressures would continue to weigh on margins. Meanwhile, Caterpillar (CAT) dropped after issuing a disappointing Q4 profit figure.
Turning to economic news, the employment cost index rose 1% in Q4 compared to the previous quarter. This was slightly less than the 1.1% increase that economists had predicted and below the 1.2% advance seen in the previous period.
An article from a well-sourced Fed reporter from the Wall Street Journal indicated that the employment cost data could weigh into the central bank’s future decision-making. While a likely 25-basis-point increase is baked in for Wednesday’s announcement, “the data could bolster the case to pause rate increases this spring—possibly after another anticipated quarter-point increase at Fed officials’ March 21-22 gathering,” the article stated.
Elsewhere, the S&P CoreLogic Case-Shiller Index slumped 0.5% in November, the fifth consecutive month of declines. This matched the drop that experts had expected.
Looking at the fixed-income markets, yields pushed lower ahead of the Fed decision. The 10-year Treasury yield (US10Y) fell 4 basis points to 3.52% and the 2-year yield (US2Y) declined 6 basis points to 4.20%.
Looking beyond the earnings headlines, Lithium Americas (LAC) surged on news of a partnership with GM that includes a $650M equity investment in LAC.