Stocks rebounded Thursday morning after a steep sell-off following the Federal Reserve’s meeting, as investors grew doubtful about Fed Chair Kevin Warsh’s willingness to tackle inflation by raising interest rates.
The Dow Jones Industrial Average rose 194 points, or 0.4%, by about 9:40 a.m. ET, while the S&P 500 and Nasdaq jumped 0.8% and 1.6%, respectively.
On Wednesday, the three major stock indexes saw wild swings during Warsh’s second meeting as chairman, eventually turning red – with the Dow losing 1,150 points – as traders took higher bond yields as a sign that the Fed is falling behind in the fight against inflation as it holds rates steady.
“The stock market is undergoing a repricing as the bond market is sending a clear message that rates are going higher. Higher rates generally make stocks less attractive,” Richard Reyle, chief investment officer at Questar Capital Partners, said in a note Thursday.
Warsh, however, argued that Treasury yields moving higher despite no movement in the federal funds rate is proof that his refusal to share forward guidance is already working and that markets are analyzing economic data independent of the Fed.
Though he repeatedly emphasized a commitment to tamping down inflation, he refused to answer how he planned to lower prices or when he would be willing to hike rates – leading traders to grow skeptical of his willingness to do so.
“Warsh delegating the interest outlook to the markets is something that markets are actually not used to,” Reyle said. “The market has always tried to take its cues from the Fed, even when the Fed has gotten it wrong on rates, and now the market is being asked to be the Fed chair. This is a conundrum that may take time to play out.”
Meanwhile, key oil benchmarks fell Thursday despite rising tensions in the Middle East.
Brent crude oil prices dipped 1.6% to $89.26 a barrel while West Texas Intermediate sank 1.6% to $83.12.
The US military said Thursday that it had launched “a heavy wave of strikes” against Iran overnight in response to surprise attacks on US forces in Jordan, which were successfully intercepted. Tehran has threatened further escalation.
For the first time since May, oil prices surged to $100 a barrel last week as the US and Iran resumed fighting after a multi-day pause – but it seems markets are again trying to shrug off concerns around a lasting Middle East conflict.
They were also digesting a bevy of earnings reports Thursday morning, including major tech companies and some restaurant chains impacted by a diarrhea-parasite outbreak this month.
Shares of Microsoft jumped 14% after the software giant reported strong revenue and explosive growth in its Azure business.
But shares of Meta plunged 9.7% after Mark Zuckerberg’s social media giant missed earnings estimates – as it continued to spend massively on artificial intelligence.
Shares of Yum! Brands jumped 6.4% after its CEO said sales at Taco Bell were hurt by news of the cyclospora outbreak, but that business is already improving.
Chipotle stock also rallied 13.7% after the burrito-and-bowl chain hiked its sales forecast and assured shareholders that its lettuce is not impacted by the parasite.