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Market Snapshot: U.S. stocks end higher after two days of losses though Fed officials expect no interest rate cuts this year

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U.S. stocks were trading higher Wednesday as investors digest the jobs data and a fresh reading on manufacturing activity ahead of the Federal Reserve’s release of its December policy meeting minutes.

How stock indexes are trading

The Dow Jones Industrial Average
DJIA,
+0.58%

was up 148 points, or 0.4%, at 33,283.

The S&P 500
SPX,
+1.05%

added almost 33 points, or 0.9%, to around 3,857.

The Nasdaq Composite
COMP,
+11.49%

climbed nearly 73 points, or 0.7%, to 10,460.

On Tuesday, stocks ended lower to kick off 2023 after suffering their worst yearly performance since 2008.

What’s driving markets

Stocks traded higher on Wednesday after Institute for Supply Management data showed weakness in U.S. factory activity in December. The ISM manufacturing index, which measures U.S. manufacturing activity, slipped to 48.4, the lowest level since the pandemic. Any number below 50% reflects a contraction in activity.

Equity bulls were hoping to see data showing an economic growth that is slowing, though not too much, as this could allow the U.S. central bank to slow the pace of interest rate rises.

However, in other economic data, U.S. job openings fell slightly in November in a still strong labor market, raising concerns that the Federal Reserve may not be near the end of its monetary tightening cycle.

“Plentiful openings with relatively few available workers indicate a tight labor market and put upside pressure on wages,” said Jeffrey Roach, chief economist for LPL Financial, in emailed comments Wednesday. “The Federal Reserve will continue tightening as rising wage pressure is a key risk to the inflation outlook.”

Read: U.S job openings stay high at 10.5 million and show labor market still very strong

U.S. equities had opened higher before the Labor Department released the job-openings data for November, boosted in part by encouraging inflation data from Europe. A decline in the French consumer-price index was larger than expected, for example.

“If inflation can fall in the EU, it should help relieve upward pressure on U.S. Treasury yields and that would be an incremental and surprise positive for stocks at the start of the year,” said Tom Essaye, founder and president of Sevens Report Research, in a note Wednesday. “Bottom line, markets need inflation to fall globally, not just in the U.S., so that bond yields can decline and the market multiple on stocks can support valuations.”

Wall Street’s benchmark S&P 500 index fell 19.4% in 2022 after the Fed tried to combat the highest inflation in decades by raising interest rates 425 basis points in just nine months, a move that risks recession and lower company earnings.

U.S. stocks got off to a bumpy start on Tuesday, the first trading day of 2023, with three benchmark indexes finishing in the red.

“We had a pretty big sell off yesterday and then we really cut it down at the end of the day. There’s a good amount of buying that came in, so I think the sentiment is not strong on the upside, but it’s resilient,” said Eric Diton, president and managing director at The Wealth Alliance in New York.

“It can be a little choppy in the first half of the year, but the Fed’s going to be done raising rates by the end of the first half, so even before the Fed drops rates, that’s going to take a lot of pressure off the market. I think the markets can do pretty well in 2023, especially in the second half,” he added.

Meanwhile, Mark Newton, head of technical strategy at Fundstrat, noted that the stock market’s first day of trading — particularly the poor performance of some big tech stocks like Apple
AAPL,
+1.74%

— did not bode well.

“The downward tug of large-cap technology along with bearish cycle projections for January still argue that the path of least resistance might be lower over the next couple weeks before any low is in place,” said Newton. “However, this doesn’t imply that October lows have to be tested or broken right away.”

Investors are waiting for the Fed to release minutes of its December policy meeting at 2 p.m. Eastern time.

“The market continues to price in the likelihood of a further 0.25% interest rate rise from the Fed in February, with a terminal rate of around 5% later in the year,” said Richard Hunter, head of markets at Interactive Investor.

“As time progresses and the time lag from previous rate rises diminishes, the full effects of the tightening should become clearer, with the major concern remaining that the aggressive hiking policy so far could tip the world’s largest economy into recession,” Hunter said.

Companies in focus

GE HealthCare Technologies 
GEHC,
+5.15%

jumped around 4.7% as it began trading as a separate company on the S&P 500 index Wednesday. In 2021 GE announced plans to break up into three companies so it can focus on its aviation business. It plans to spin off its energy segment in 2024. Shares of GE
GE,
+3.94%

were up more than 3%.

Salesforce
CRM,
+3.51%

shares rose 3.2% after the cloud based marketing software company announced a restructuring plan that includes cutting its staff by about 10% and the closure of some offices.

Chinese ADRs jumped after Ant Group received approval to expand its consumer finance business in a sign of progress in resolving regulators’ concerns. Shares of Alibaba 
BABA,
+12.50%
,
which owns 33% of Ant, gained more than 12%, while JD.com 
JD,
+15.35%

surged more than 15%.

Shares of Coinbase Global, Inc. 
COIN,
+13.75%

jumped 12.8% after the cryptocurrency exchange settled a case with New York’s state financial regulator and agreed to pay a $50 million penalty for prior compliance issues and invest another $50 million in compliance efforts.

— Jamie Chisholm contributed to this article

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