US stocks rise ahead of Fed rate decision

The S&P 500 climbed 0.9%. The Dow Jones Industrial Average added 113 points, or 0.4%, to 30,478, and the Nasdaq Composite rose 1.4%.

The Federal Reserve will present details of its latest efforts to curb inflation through tighter monetary policy at 2 p.m. ET. Investors expect the Fed to raise its benchmark short-term rate by 0.75 percentage points, which would mark the biggest hike in central bank interest rates since 1994.

The central bank had previously signaled that it would likely raise rates by half a percentage point in June and July. Many analysts believe recent inflation reports have likely caused officials to reconsider their stance. Friday’s data showed U.S. consumer prices rose in May at the fastest rate since 1981, while a Monday report showed household expectations for near-term inflation hit the highest level ever recorded. Fed funds futures, used by traders to track changes in monetary policy expectations, now show market prices with a 96% chance of a 0.75 percentage point increase, up from just 8% a week ago, according to CME Group.

Ultimately, guidance from the Fed on the direction of interest rates on Wednesday is more important to markets than the magnitude of the rate hike, said Dorian Carrell, fund manager at Schroders. Uncertainty over monetary policy has been a key driver of volatility this year, helping to send the S&P 500 on Monday into bearish territory, down at least 20% from a previous high.

Stocks rose broadly on Wednesday, with seven of the 11 S&P 500 sectors up around noon.

Tech stocks, which have been among the hardest hit sectors in the market this year, were among the biggest gainers. Microsoft,

Nvidia,

Amazon.com and Netflix each added more than 2% each.

Economically sensitive sectors of the market also increased. Bank stocks, which had sold off on investor fears of slowing growth, rose on Wednesday, with the KBW Nasdaq Bank index up 1.9%.

Energy stocks fell, marking a relatively rare setback for the best-performing S&P 500 sector of the year. The S&P 500 energy sector fell 0.8%.

Meanwhile, US government bonds stabilized after falling in recent weeks in a sell-off that pushed yields to their highest levels in more than a decade. The yield on 10-year Treasury bills slipped to 3.405% from 3.482% on Tuesday. Yields, which fall as bond prices rise, help set rates for everything from mortgages to federal student loans to auto loans.

Elsewhere, European stocks and peripheral eurozone government bonds rallied after the ECB held an ad hoc meeting on Wednesday to discuss turmoil in the region’s bond markets.

The ECB outlined a plan to buy more bonds from weaker eurozone governments under an existing bond-buying program. He instructed ECB staff to fast-track the design of a new instrument that would reduce borrowing cost differentials across the region, tackling financial imbalances that have long been a problem for the monetary union.

“They wanted to make sure the funding conditions didn’t deteriorate too much,” said Willem Sels, chief investment officer at HSBC Private Banking and Wealth Management. He said the meeting signaled that the ECB was ready to cushion markets ahead of investors’ expectations.

The Stoxx Europe 600 rose 1.4%, driven by shares of banks and insurers. Shares of Italian banks, which hold a large share of government bonds, suffered as the price of debt fell. Intesa Sanpaolo and UniCredit were among the best performers in the European market on Wednesday.

Where in the US household budget is inflation hitting the hardest? The WSJ’s Jon Hilsenrath traces the roots of rising prices to understand why some sectors have risen much more than others. Photo illustration: Laura Kammermann/WSJ

Cryptocurrencies have continued to tumble. Bitcoin fell to $21,364, putting the digital currency on course for a ninth consecutive daily loss. Ethereum also slipped, extending a cryptocurrency rout that has wreaked havoc on companies such as Coinbase Global, which is laying off nearly a fifth of its staff, and Celsius Network, a crypto lender currently examining options for restructuring.

Behind the massive crypto sell-off and recent turmoil in traditional financial markets lies the Fed’s likely shift in gear in its efforts to stifle decades-high inflation. For years after the 2008-09 financial crisis, stocks, bonds and more speculative assets soared as central banks kept borrowing costs low to stifle economic growth.

The pandemic, whose economic effects central banks and governments have fought through unprecedented financial stimulus, has accelerated this upward trend. Creeping inflation prompted the Fed and many of its counterparts to roll back their easy money policies, and the assets that had benefited the most are suffering.

The S&P 500 pushed further into bearish territory on Tuesday.


Photo:

Michael Nagle/Zuma Press

Corrections & Amplifications
Yields on 10-year government bonds in Italy stood at 4.111% on Tuesday. An earlier version of this article incorrectly stated that yields stood at 4.067%. (Corrected June 15)

Write to Joe Wallace at joe.wallace@wsj.com and Akane Otani at akane.otani@wsj.com

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