Market Tumbles As Fed Holds Rates – Signals Hold For Longer

US stocks tumbled after the Fed Open Market Committee convened on Wednesday, January 31, 2024, at 2 P.M. After the meeting, the committee announced it was holding interest rates at the current nominal.

Fed Holds Interest Rates Steady

In line with expectations, the Fed’s Open Markets Committee announced interest rates would remain at 5.25%-5.5%. The rate hold comes amidst cooling inflation and rising resiliency in the US economy.

In the accompanying statement on the announcement, the committee signaled that rates would hold steady for longer. It stated,” The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”  

Stock Market Reacts to FOMC Announcement

Before the Fed announced its rates, three major stock indexes were already trending downward on weak tech and tech-adjacent mega stocks. The stocks began sliding after Alphabets’ disappointing quarterly results.

After the Fed announced it was holding rates steady, the three indexes slid further. However, they are still on track to close out the month of January with record gains. In general, many of the stocks on Wall Street were in the red following the Fed’s announcement.

Jobs Numbers

The Fed’s announcement came on the same day as other several economic indicators were released. One of the most important is the labor costs for the fourth quarter. The report revealed that labor costs had grown at a lower-than-expected level.

The Q4 increase was the smallest in two years, which could signal slowing wage inflations. Jobs numbers also revealed that job hopping was at a three-year low in Q4, which could help slow down wage inflation.

The US ADP Nonfarm payroll numbers showed that jobs grew 107K, lower than the forecast of 145K. It also marked a huge decline from the 164K reported at the end of December 2023.

Major Earnings Reports

Alphabet‘s fourth-quarter earnings and revenue surpassed estimates. However, the stock was down 7.35% at the close of trading on January 31, 2024, after its core ad business missed estimates. The stock was valued at $141.80 per share.

Alphabet reported an EPS of $1.64 vs. the projected EPS of $1.59. Its revenue for the quarter was $86.31 billion vs. a projected $85.33 billion. However, the reported ad revenue of $65.52 billion came in below the projected $65.94 billion.

 AMD stock closed trading 2.54% lower at $167.69 per share after mixed Q4 results. It reported an EPS of $0.77, in line with expectations. Its $6.17 billion revenue came in above expectations of $6.12 billion.

However, AMD’s Q1 estimates were below analysts’ expectations. The company gave a guidance of $5.4 billion in sales, below analysts’ estimates of $5.73 billion.

Microsoft (MSFT) was another major stock that closed trading lower on January 31, 2024. The company closed trading 2.69% lower at $397.58 per share.

Microsoft reported better-than-expected second-quarter results. Its EPS for Q2 was $2.93 vs. a forecast of $2.78. Revenue came in at $62.02 billion vs. a forecast of $61.12 billion. However, the company’s Q3 revenue guidance with a midpoint of $60.50 was below analysts’ forecast of $60.93 billion.

Will The Fed Hike Rates Again?

A spate of economic data, the disappointing numbers from Alphabet, and the Fed rate hold all contributed to a poor midweek performance for Wall Street stocks. However, in the medium term, the Fed could cut rates if inflation meets its 2% target.

However, the date of the first cut is unlikely to be in March, as previously predicted. For now, the main takeaway is that the Fed is unlikely to raise rates again after 11 consecutive increases starting in March 2022.

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