Fed signals rate-hike slowdown, lifting US stocks to fresh gains

The stock market shook off an uncertain morning Wednesday to close higher, buoyed by fresh signals from the Federal Reserve that its aggressive campaign of rate increases may be about to ease. Minutes released from the central bank's November meeting showed that a substantial majority of policymakers now believe it's time to slow the pace of those hikes—a shift that sent investors reaching for equities after weeks of volatility.

The S&P 500 pushed further into territory it had only briefly touched before, closing above the 4,000 mark for the second consecutive day and the first time since September. The Dow Jones Industrial Average gained 95.96 points to finish at 34,194.06, while the Nasdaq Composite climbed 0.99% to 11,285.32. Nine of the index's eleven sectors moved higher, with consumer discretionary stocks leading the way. It was the market's second straight day of gains, a modest but meaningful reversal after months of uncertainty about how far the Fed would go in its fight against inflation.

The Fed has raised its benchmark interest rate by 75 basis points at each of its last four meetings—an unusually aggressive pace designed to cool demand and bring inflation back down toward its 2% target. But the minutes made clear that this particular rhythm was likely to change. The language was careful but unmistakable: policymakers were preparing to downshift. Quincy Krosby, chief global strategist at LPL Financial, interpreted the signals as pointing toward a 50 basis point increase in December, a meaningful reduction from the recent pattern. She cautioned, though, that this doesn't represent the full policy reversal some investors had been hoping for. Instead, she wrote, it suggests the Fed is moving toward what she called a "lower-for-longer" path—keeping rates elevated for an extended period while the central bank watches how the cumulative weight of higher borrowing costs ripples through the broader economy.

The morning had offered little hint of this afternoon's optimism. The Labor Department reported that weekly jobless claims rose by 17,000 to reach 240,000, the highest level since August and higher than economists had expected. That data initially weighed on sentiment, but the Fed minutes proved more powerful. Investors appeared willing to look past the labor market softening in exchange for the prospect of smaller rate increases ahead.

Individual stocks told their own stories within the broader market movement. Deere & Company climbed after announcing it was raising its profit outlook for 2023 to a range of $8 billion to $8.5 billion. Nordstrom, by contrast, fell after the retailer trimmed its 2022 earnings guidance to between $2.13 and $2.43 per share. Credit Suisse's American-listed shares also declined, following the bank's warning that it would post a loss of up to 1.5 billion Swiss francs—roughly $1.6 billion—in the fourth quarter as it navigates an ongoing restructuring.

The market's calendar was about to thin considerably. Equity trading would be closed entirely Thursday for Thanksgiving and would wrap up early Friday at 1 p.m. Eastern, leaving investors with limited time to act on the week's developments. For now, though, the message from the Fed had been received: the era of consecutive 75 basis point increases was ending, and markets were pricing in a gentler path ahead.