Stocks soared across the board Wednesday in the lead-up to the Federal Reserve's mid-afternoon policy statement. The main indexes built on these gains after the central bank left the federal funds rate unchanged, as expected, but hinted that a September rate cut could be in the cards.
There was plenty for Wall Street to take in ahead of the Fed. Tech stocks were the main focus on the earnings calendar, with most headlines centered around Microsoft (MSFT, -1.1%).
While the company beat on the top and bottom lines in its fiscal fourth quarter, the 29% year-over-year revenue growth in its Azure and other cloud services segment came up short of the 30% increase analysts were expecting. MSFT also gave soft revenue guidance for its fiscal Q1.
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Oppenheimer analyst Timothy Horan says Microsoft stock is still a buy after earnings, explaining the company "is especially well positioned for enterprise artificial intelligence (AI) adoption" in the cloud space "due to its large entrenched customer base and infrastructure."
AMD earnings fuel major upside for Nvidia
Advanced Micro Devices (AMD) made its own waves after the chipmaker said data center revenue more than doubled in Q2. This enabled AMD to report higher-than-expected earnings and revenue, while the company also gave upbeat third-quarter guidance.
In reaction to the solid earnings report, AMD shares surged 4.4%, sparking a broader rally in semiconductor stocks. Broadcom (AVGO, +12.0%) and Arm Holdings (ARM, +8.4%) were two notable gainers.
Mega-cap chipmaker Nvidia (NVDA) also got in on the action, spiking 12.8% to add $326 billion in market value – the biggest one-day gain in market cap ever by any U.S. company, according to Dow Jones Market Data. To put this figure in context, it's roughly the entire market valuation of blue chip drugmaker AbbVie (ABBV, -0.8%).
Jobs, wage data in focus ahead of Fed
Wednesday wasn't all about earnings, though. In economic news, data from ADP showed private payrolls increased by 122,000 in July. This was below June's upwardly revised 155,000 figure, as well as economists' forecast for 150,000 new jobs. The report also showed that annual pay for job stayers rose 4.8%, the slowest pace of growth in three years.
"With wage growth abating, the labor market is playing along with the Federal Reserve's effort to slow inflation," said ADP Chief Economist Nela Richardson in a statement. "If inflation goes back up, it won't be because of labor."
Along similar lines, data from the Bureau of Labor Statistics showed the seasonally-adjusted Employment Cost Index (ECI) increased 0.9% during the second quarter, slower than Q1's 1.2% rise and below economists' expectations for 1% growth.
"Labor costs continue to decelerate," says Jeffrey Roach, chief economist for LPL Financial. "In fact, the quarterly change in labor costs for goods-producing industries rose the smallest since 2018. Investors should expect services inflation to decelerate as labor costs ease."
Fed keeps rates unchanged, hints at September rate cut
In today's policy statement, the Federal Reserve admitted that there has been progress on the inflation front, though it also said it "remains somewhat elevated." As such, the central bank kept its federal funds rate at a 23-year high.
But most folks expect the central bank to cut rates by a quarter-percentage point at its September meeting. While Fed Chair Jerome Powell didn't commit to that explicitly at today's press conference, he did say that if "the evolving outlook and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market … a reduction in our policy rate could be on the table or as soon as the next meeting in September."
"As expected, the Fed is setting the table for interest-rate cuts starting at their next meeting in September," says Ryan Detrick, chief market strategist at Carson Group. "Inflation has improved substantially, and we've even seen wages come back to earth the last few months. The reality is inflation is slowing and the Fed doesn't need rates this high anymore."
At the close, the Dow Jones Industrial Average was up 0.2% at 40,842, the S&P 500 was 1.6% higher at 5,522, and the Nasdaq Composite had gained 2.6% to 17,599.
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