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US open: Stocks bounce back after Fed minutes on better-than-expected labour data
Stocks rose across the board as Wall Street trading kicked off on Thursday, as positive data on the labour market offset investors' concerns surrounding potential interest rate hikes coming from the Federal Reserve's most recent meeting.
At 1515 GMT, the Dow Jones Industrial Average had moved ahead 0.69%, while the S&P 500 and Nasdaq had gained 0.56% and 0.49%, respectively, after all three indices ended Wednesday's session in the red as minutes from the US central bank's meeting at the end of last month pointed to at least three rate hikes this year.
The minutes revealed that Fed officials see an increased economic growth outlook and a rise in inflation as justification to keep lifting rates gradually.
"A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate," the minutes stated. Previously, the policy statement said that gradual increases in the federal funds rate were likely to be appropriate but the use of the word "further" this time around is what seemed to rattle investors.
Daiwa Capital Markets said that "further" could mean more increases than currently built into the dot plot, or it could mean more than the five changes that have occurred since late 2015.
"In reading the minutes we did not get the sense that the Committee was attempting to signal a likely upward shift in the dot plot. Rather, we viewed the wording change as a signal that officials were more confident that the economy would be performing well and that the Fed would remain active this year. To be sure, four tightenings are possible this year, especially with the budget agreement adding another dose of fiscal stimulus, but four shifts are not assured," they said.
The broker stood by its forecast of three for now, but said this would quickly change if the economy shows signs of growing faster than 2.5%.
The hawkish tone of the minutes sent stocks lower, the dollar higher and the yield on the 10-year Treasury bond to a fresh four-year high above 2.94% on Wednesday. However, by Thursday bonds were retracing that move, with yields having fallen by three basis points to 2.92%.
Craig Erlam, senior market analyst at Oanda, said: "The minutes from the January meeting, like the statement that accompanied it, were quite hawkish and pointed to at least three rate hikes this year. While this is now strongly priced in - more than 50% - there is potential for a fourth and more again next year, something that appears to be worrying investors and shaking confidence in equity markets."
With interest rates firmly in focus, investors will be eyeing Atlanta Fed President Raphael Bostic's speech later in the day after New York Fed President William Dudley failed to comment on interest rates in a research presentation on the effects of Hurrican Maria which struck Puerto Rico on 20 September, the worst natural disaster in 90 years and the largest government bankruptcy in US history.
Dudley, who was set to stand down from his role by the middle of the year, added that the US territory's labour market appeared to have stabilised due to a return of hospitality jobs and the emergence of construction.
"These job gains are expected to continue for some time to come," he told reporters at the New York Fed.
However, Dudley, who's views tend to be more on the hawkish side of the policy spectrum, stayed mum regarding the outlook for monetary policy.
Investors were also waiting on an afternoon Treasury auction of $29bn of seven-year debt.
In corporate news, shares in streaming video company Roku fell as much as 15.45% following a disappointing outlook late on Wednesday, while Cheesecake Factory gained 4.28% despite its quarterly revenue falling short of expectations.
Elsewhere, Chesapeake Energy soared ahead 18.63% after better-than-expected fourth-quarter earnings and car-rental giant Avis picked up 12.94% on its own unexpectedly positive results.
Pandora Media shed 8.83% after the music streaming service posted a wider than expected adjusted net loss, despite a stronger-than-expected quarterly revenue on Wednesday, and Wayfair shares tumbled 20.56% after the Internet-based home retailer reported a wider-than-expected fourth-quarter loss.
On the data front, initial US jobless claims fell by 7,000 to 222,000 in the seven days ended 17 February, beating analysts' estimates of 230,000 to come in at the second-lowest level since the end of the 2007-2009 recession.