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Stocks breathed a massive sigh of relief Wednesday afternoon after the Federal Reserve gave the markets exactly the rate hike they were betting on – and indicated that future hikes were unlikely to be more aggressive.
Specifically, the Federal Open Market Committee chalked up its first 50-basis-point increase to its benchmark Fed funds rate since 2000. Between that and March's 25-point hike, the Fed's target rate now sits at 0.75%-1.0%.
The central bank also said Wednesday that it would begin winding down its $9 trillion trove of bonds, mortgage-backed securities and other assets it previously bought up to stimulate the economy, starting at $47.5 billion per month and reaching $95 billion per month by September.
Both announcements were right in line with many strategists' expectations.
"There were no major bombshells in the press release today, and the plan for quantitative tightening was mildly dovish," says Cliff Hodge, chief investment officer for registered investment advisory firm Cornerstone Wealth. "[The FOMC's statement that it would be 'highly attentive to inflation risks'] provides some flexibility to adjust policy in light of new data. Overall, [the announcement was] about as dovish as could be expected while still showing that the Fed is serious about fighting inflation."
However, Jamie Cox, managing partner at Harris Financial Group, noted that Fed Chair Jerome Powell "had a third mandate today – and that was to dispel the notion of a 75-basis-point rate increase."
Mission accomplished.
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"A 75-basis-point increase is not something we're actively considering," Powell said in his post-meeting press conference. "Our framework is for 50-basis-point increments at the next two meetings."
That good news helped to counter a couple drags from the economic data feed. The ADP payrolls survey for April came in well below expectations, with 247,000 jobs added versus 380,000 estimated. Also, the Institute for Supply Management's April non-manufacturing survey reading was 58.3, down from 57.1 in March, showing expansion was slowing.
"Like the manufacturing report earlier this week there was a big drop in the employment component, which, along with the ADP report this morning points to a potentially weaker employment report on Friday," says Michael Reinking, senior market strategist for the New York Stock Exchange.
Stocks ripped higher following Powell's press conference. All 11 S&P 500 sectors finished well in the green, sending the index up 3.0% to 4,300. The Nasdaq Composite was a touch better, up 3.2% to 12,964. And the Dow Jones Industrial Average closed with a 2.8% gain to 34,061.
"This is not the Federal Reserve of the 1970s, where every excuse was given about why inflation was high," Cox says. "This Fed, under the direction of Chair Powell, is owning inflation as a problem and is intent upon fixing it. The first and most important tool of inflation fighting is credibility – and Chair Powell established that today."
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Other news in the stock market today:
While interest rates might not end up rising as quickly as some pundits feared, they're still rising. That means investors still need a plan to find upside in a rising-rate environment.
Gargi Chaudhuri, head of iShares Investment Strategy America, says her firm favors "a multi-asset approach for navigating the current market environment and adding potential resiliency in a portfolio."
What does that look like?
There are myriad ways to secure equity dividends – we provide several suggestions in our 37 Ways to Earn 9% – but it's difficult to match the security you can lock down by investing in Wall Street's dividend royalty: the S&P 500 Dividend Aristocrats.
This elite group of stocks with decades-long track records of increasing dividends have been busy of late, as earnings season is one of the most popular times for companies to announce that, for yet another year, they're upping the stakes on their payouts. For weeks, we've been furiously updating this growing, living list.
Read on to check out the full roster of S&P 500 Dividend Aristocrats, including their most recent hikes.
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