Day Traders Diary

2/1/23

The major averages gained on Wednesday in an intraday turnaround as investors shook off a quarter-point rate hike from the Federal Reserve and instead focused on comments from Fed Chairman Jerome Powell that acknowledged falling inflation. The S&P 500 gained 1% or 42 points reversing an early decline of almost 1%. The Nasdaq Composite added 2% or 231 points, led by gains in chipmakers following strong earnings from Advanced Micro Devices. The Dow Jones Industrial Average rose 6 points or little changed, after sliding more than 500 points at the day's lows.

The Fed's latest hike represented a slowing from its half-point increase in December, giving a nod to investors hoping the central bank would ease off its aggressive tightening campaign. They were further encouraged by Powell's comments.

"We can now say for the first time that the disinflationary process has started. We can see that and we see it really in goods prices so far," Powell said at the post-meeting press conference.

However, the central bank gave no real hint of a pause in hikes, keeping language in its post-meeting statement that "ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time."

In remarks at the press conference, Powell added that the Fed would need to be restrictive for some time and the central bank had more work to do.

"I see no signs yet that the Fed is open to 2023 rate cuts," said Bill Zox, portfolio manager at Brandywine Global. "I'm not sure the Fed is even trying for a soft landing. While they would never say so, they might prefer the restorative aspects of a recession and a proper bear market."

There's been some recent indications that inflation is easing in the broader economy and the Fed acknowledged that, saying in its post-meeting statement that it "has eased somewhat but remains elevated."

Stock benchmarks also got a boost as fourth quarter corporate earnings largely continued to show resilient profits. Peloton shares surged more than 25% after the fitness equipment company said its net loss narrowed year over year. Advanced Micro Devices

 shares gained more than 13% after the semiconductor company reported a fourth-quarter earnings beat.

Wall Street is coming off a strong month. The S&P 500 capped its best January performance since 2019, while the tech-heavy Nasdaq Composite notched its strongest January in 22 years.