Wall Street closes with big gains after Fed interest rate hike

  • Dow up 2.81%, S&P 500 up 2.99%, Nasdaq up 3.19%
  • Lyft slumps over concerns over ridership and spending

May 4 (Reuters) – U.S. stocks ended sharply higher on Wednesday after the Federal Reserve announced a widely expected interest rate hike, and the S&P 500 posted its biggest one-day percentage gain in nearly two years.

Stocks initially tumbled after the announcement, then indices strengthened. The nearly 3% advance in the S&P 500 was the strongest since May 18, 2020.

The Federal Reserve on Wednesday raised its benchmark overnight interest rate by half a percentage point and said it would begin trimming the central bank’s $9 trillion portfolio of assets on Wednesday. next month with the aim of further reducing inflation.

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The US central bank set its target federal funds rate in a range between 0.75% and 1% in a unanimous decision, with further increases in borrowing costs of perhaps similar magnitude likely to follow.

“Clearly they (the Fed) understand the need to contain the price spike,” said Greg Bassuk, managing director of AXS Investments in Port Chester, New York.

“Even if the Fed becomes more aggressive with rate hikes, we still have to deal with geopolitical tensions, ongoing COVID issues as well as these large corporate earnings results. So despite the decision of the Fed, we believe we will see even more volatility ahead.”

Investors watched Powell’s press conference for new clues about how far and how fast the central bank is willing to go in a bid to bring down inflation, which has been high for decades.

The Dow Jones Industrial Average (.DJI) rose 932.27 points, or 2.81%, to 34,061.06, the S&P 500 (.SPX) gained 124.69 points, or 2.99%, to 4,300.17 and the Nasdaq Composite (.IXIC) added 401.10 points, or 3.19%, to 12,964.86.

Concerns about a hit to economic growth from a hawkish Fed, mixed earnings at some large growth companies, conflict in Ukraine and pandemic-related lockdowns in China have hammered Wall Street recently, with shares of highly valued growth bearing the brunt of the sell- off.

Two separate data sets showed private employers hired the fewest workers in two years last month, while expansion in the services sector unexpectedly lost some momentum in April. Read more

Shares of Lyft Inc (LYFT.O) fell 30% on concerns about the company’s traffic and expenses. The ride-hailing company reported first-quarter revenue of $875 million, up 44% from a year earlier, while the number of active riders beat analysts’ expectations.

Starbucks Corp (SBUX.O) rose 9.9% after the coffee chain saw comparable quarterly sales rise 12% in North America. Read more

Livent Corp (LTHM.N) gained 30.2% after posting better-than-expected quarterly profit and boosting its 2022 revenue outlook on stronger demand for lithium used in electric vehicle batteries. Read more

All 11 major S&P sectors rose, with energy (.SPNY) leading the gains.

Bank stocks rose 3.5% after two-year U.S. Treasury yields, the most sensitive to the Federal Reserve’s interest rate outlook, hit their highest level since November 2018. The benchmark yield at 10 years exceeded 3% for a third consecutive day.

Volume on U.S. exchanges was 13.46 billion shares, compared to an average of 11.97 billion for the full session over the past 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a ratio of 3.98 to 1; on the Nasdaq, a ratio of 2.39 to 1 favored advancers.

The S&P 500 posted two new 52-week highs and 37 new lows; the Nasdaq Composite recorded 28 new highs and 360 new lows.

(This story corrects registration period to nearly two years from nearly one year in the first paragraph)

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Reporting by Echo Wang and Chuck Mikolajczak in New York, Devik Jain in Bengaluru; Editing by Shounak Dasgupta, Anil D’Silva and Cynthia Osterman

Our standards: The Thomson Reuters Trust Principles.

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