U.S. Stocks Finish Extremely Volatile Session Mostly Higher

Stocks saw wild fluctuations over the course of the trading session on Wednesday before eventually finishing the day mostly higher. The major averages spent much of the day swinging back and forth across the unchanged line.

The major averages all finished the day in positive territory after starting off the New Year on a negative note. The Dow rose 133.40 points or 0.4 percent to 33,269.77, the Nasdaq climbed 71.78 points or 0.7 percent to 10,458.76 and the S&P 500 advanced 28.83 points or 0.8 percent at 3,852.97.

The substantial volatility on the day came as traders awaited and subsequently reacted to the minutes of the Federal Reserve’s December monetary policy, which reinforced expectations the central bank is likely to continuing raising interest rates.

The minutes reiterated that officials continue to anticipate that ongoing rate increases would be appropriate to achieve the Fed’s dual objectives of maximum employment and price stability.

The Fed noted that the pace of future rate hikes would take into account the cumulative tightening of monetary policy, the lags with which policy affects economic activity and inflation, and economic and financial developments.

At the meeting, the Fed decided to raise interest rates by 50 basis points, which marked a slowdown in the pace of rate hikes following four consecutive 75 basis point increases.

The Fed minutes noted all participants also raised their assessment of the appropriate path of interest rates, while none anticipated that it would be appropriate to begin reducing rates in 2023.

“Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time,” the Fed said.

The central bank added, “In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.”

On the U.S. economic front, the Institute for Supply Management released a report showing U.S. manufacturing activity contracted at a slightly faster rate in the month of December.

The ISM said its manufacturing PMI edged down to 48.4 in December from 49.0 in November, with a reading below 50 indicating a contraction. Economists had expected the index to slip to 48.5.

Manufacturing activity contracted for the second consecutive month after expanding for 29 straight months, with the manufacturing PMI falling to its lowest level since hitting 43.5 in May 2020.

Paul Ashworth, Chief North America Economist at Capital Economics, called the decrease by the manufacturing PMI “another sign that the economy was losing momentum at the tail-end of last year.”

Sector News

Airline stocks moved sharply higher over the course of the session, with the NYSE Arca Airline Index soaring by 6.4 percent.

Substantial strength was also visible among gold stocks, driving the NYSE Arca Gold Bugs Index up by 4.9 percent to a nearly seven-month closing high. The rally came as the price of gold for February delivery $12.90 to $1,859 an ounce.

Semiconductor stocks also turned in a strong performance on the day, resulting in a 2.7 percent jump by the Philadelphia Semiconductor Index.

Tobacco, banking and commercial real estate stocks also saw considerable strength, while software stocks moved to the downside amid a steep drop by Microsoft (MSFT).

Shares of Microsoft (MSFT) tumbled by 4.4 percent after UBS downgraded its rating on the software giant’s stock to Neutral from Buy.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher, although Japanese stocks bucked the uptrend. While Japan’s Nikkei 225 Index slumped by 1.5 percent, Hong Kong’s Hang Seng Index spiked by 3.2 percent and South Korea’s Kospi jumped by 1.7 percent.

The major European markets also moved to the upside on the day. While the U.K.’s FTSE 100 Index rose by 0.4 percent, the German DAX Index and the French CAC 40 Index surged by 2.2 percent and 2.3 percent, respectively.

In the bond market, treasuries extended the notable rebound seen in the previous session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 8.4 basis points to 3.709 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to reports on weekly jobless claims, private sector employment and the U.S. trade deficit.

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