The S&P 500 advanced 1.9% on Wednesday, as stocks rallied past another spike in oil prices amid hope surrounding the Russia-Ukraine conflict and a potentially less-hawkish Fed. WTI crude futures topped $110 per barrel ($111.04, +7.61, +7.4%).
The Nasdaq Composite (+1.6%) and Dow Jones Industrial Average (+1.8%) both looked up to the benchmark index while the Russell 2000 outperformed with a 2.5% gain.
All 11 S&P 500 sectors closed higher, and 29 of the 30 Dow components closed higher. The cyclical financials (+2.6%), energy (+2.2%), materials (+2.2%), and industrials (+2.2%) sectors each rose more than 2.0%, as did the information technology sector (+2.2%). The communication services sector (+0.7%) underperformed on a relative basis.
The spike in oil prices was attributed to increased expectations for supply constraints after Russia continued its offensive in Ukraine, but the market might have suspected a near-term peak in prices, depending on the result of cease-fire talks scheduled for tomorrow.
Equally as important to the trading narrative today was what Fed Chair Powell told the House Financial Services Committee in his semiannual report on monetary policy.
The Fed chair said the central bank would “proceed carefully” because of the geopolitical uncertainty and that he would support hiking rates by 25 basis points later this month. He went on to say, though, that a 50-bps hike is still possible in the future if inflation is higher than expected.
On a related note, the Fed’s Beige Book noted that economic activity expanded at a modest to moderate pace between mid-January and February 18. Some Districts reported a temporary weakening in demand in the hospitality sector due to increased COVID-19 cases.
Treasury yields rose double-digit basis points after a two-day plunge, illustrating how negative sentiment had gotten because of the geopolitical tensions. The 2-yr yield jumped 22 basis points to 1.52%, and the 10-yr yield jumped 16 basis points to 1.87%. The U.S. Dollar Index dipped 0.1% to 97.34.
Other supportive factors included a better-than-expected ADP Employment Change report, which estimated 475,000 additions to private sector payrolls in February (Briefing.com consensus 350,000), and positive earnings news/reactions in salesforce.com ( CRM 210.39, +1.50, +0.7%), Nordstrom ( JWN 26.93, +7.39, +37.8%), Ross Stores ( ROST 95.00, +5.45, +6.1%), and Hewlett Packard Enterprises ( HPE 16.99, +1.68, +10.3%).
Reviewing Wednesday’s economic data:
- The ADP Employment Change report estimated that 475,000 jobs were added to private sector payrolls in February (Briefing.com consensus 350,000). The increase in January was upwardly revised to 509,000 from -301,000.
- Weekly crude oil inventories decreased by 2.6 mln barrels after increasing by 4.5 mln barrels during the previous week.
- The weekly MBA Mortgage Applications Index decreased 0.7% following a 13.1% decline in the prior week.
Looking ahead, investors will receive the weekly Initial and Continuing Claims report, the ISM Non-Manufacturing Index for February, revised Q4 readings for Productivity and Unit Labor Costs, and Factory Orders for January on Thursday.
- Dow Jones Industrial Average -6.7% YTD
- S&P 500 -8.0% YTD
- Russell 2000 -8.3% YTD
- Nasdaq Composite -12.1% YTD
Overseas:
- Europe: DAX +0.7%, FTSE +1.4%, CAC +1.6%
- Asia: Nikkei -1.7%, Hang Seng -1.8%, Shanghai -0.1%
Commodities:
- Crude Oil +7.61 @ 111.04
- Nat Gas +0.21 @ 4.79
- Gold -21.60 @ 1923.00
- Silver -0.30 @ 25.25
- Copper +0.09 @ 4.68