The S&P 500 and Nasdaq finished higher on Wednesday as chip stocks rallied and the Federal Reserve left U.S. interest rates unchanged but indicated it could begin easing monetary policy in September if inflation cools.
The Fed kept its benchmark overnight interest rate in the 5.25%-5.50% range as it ended its two-day policymaking meeting on Wednesday, but opened the door to easing in September, seven weeks shy of the November U.S. elections.
According to preliminary data, the S&P 500 gained 85.84 points, or 1.58%, to end at 5,522.28 points, while the Nasdaq Composite gained 451.98 points, or 2.64%, to 17,599.40. The Dow Jones Industrial Average rose 99.73 points, or 0.24%, to 40,843.06.
“It was the worst kept secret on the planet that the Fed was not going to cut in July,” said Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, Oklahoma. “The Fed is going to have its day in the sun in September with a 25 or 50 basis point cut, but I would not be surprised if that is already priced into stocks.”
During his press conference, Fed Chair Jerome Powell said policymakers discussed the case for cutting rates, but a “strong majority” agreed that now was not the appropriate time.
“The statement didn’t move the needle at all,” said Mark Malek, chief investment officer at Siebert Next in New York, referring to the Fed’s official statement. “But listening to him speak, it’s clear they’re all locked and loaded for September rate cut and they’re going to maintain their optionality.”
Data released early Wednesday showed July U.S. private payrolls increased far less than expected, indicating an easing in persistent labor market tightness.
Nvidia jumped, helped by a rosy 2024 sales forecast for artificial intelligence chips by peer Advanced Micro Devices, whose shares also gained.
Microsoft dipped after it reported massive AI-related expenses. Meta jumped ahead of its results. Apple and Amazon.com, which will report earnings on Thursday, gained as well.
The digital advertising market is bouncing back from a slump seen in 2022 and early 2023, but pockets of weakness are eating into Pinterest’s growth.
California-based Pinterest flagged material weakness in demand from advertisers in the consumer goods space, particularly food and beverage companies, which offset strength in ad spend in the technology and financial services sectors.
“The optics of a lighter (third quarter) guide will not help recently growing ad fears, and some will be concerned that food & beverage pressure — which has been isolated — could spread to other verticals with a potentially softer consumer,” J.P. Morgan analyst Doug Anmuth said.
Pinterest’s outlook could spell trouble for other smaller ad players such as Snapchat owner Snap and ad tech firm Trade Desk, analysts said, noting 18% of the gross spend at Trade Desk last year came from food and beverage firms.
“Slowing in ad spend and shifts toward promotions or discounts from (food and beverage) companies could cause some weakness in the digital ad markets...Ad platforms with fewer advertisers, more branded exposure are more at risk. Snap seems most at risk,” said Morgan Stanley’s Brian Nowak.
Shares of Snap and Trade Desk were each up nearly 1% on Wednesday after dipping about 2% premarket. Pinterest looked set to lose about $2.5 billion in market value, with at least 13 brokerages cutting their price targets.
Pinterest could take yet another hit from the lack of political ads on its platform, unlike Meta and Alphabet which are set to benefit from political advertising ahead of the U.S. elections. RBC analysts noted it could be a “few hundred” basis points of a headwind.
Commenti