CO - S&P 500 Dow Jones Nasdaq post modest gains on Fed's aggressive inflation stance

The major U.S. equity indices finished Wednesday's session with modest gains, as Wall Street reacted positively to details about the Federal Reserve's strategy to contain inflation.

Stocks saw weakness early in the session but experienced a wave of buying in the afternoon following the release of the minutes of the latest Fed policy meeting. Investors cheered signs that the central bank was committed to tamping down inflation.

However, this enthusiasm faded somewhat as shares headed into the close. The major average gave up a good chunk of their midday gains and settled near the unchanged mark by the close.

The Dow ( DJI ) is +0.2% , the Nasdaq is +0.4% and S&P 500 is +0.4% .

The Fed minutes showed that policymakers expected a hike of 50 or 75 basis points "would likely be appropriate at the next meeting." However, they also acknowledged "the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures," suggesting the central bank could take an even more aggressive stance if inflation data didn't moderate.

Going into the release, ING expected the Fed to retain its hawkish stance, with Friday's jobs report becoming the next major data point in determining how stridently the central bank will rachet up rates at upcoming meetings.

"In fact we even expect a 75bp hike in July, barring a sharp weakening in employment indicators in this Friday’s report," ING noted. "If [Fed Chair Jerome] Powell’s recent remarks are anything to go by, the tone of the FOMC minutes will cause cognitive dissonance, with markets now openly questioning how far and how long the Fed can tighten policy before having to reverse course."

Rates advanced after a drop at the open. The 10-year Treasury yield rose 12 basis points to 2.93% and the 2-year climbed 15 basis points to 2.97%.

The 5-year yield advanced 14 basis points to 2.96%. The 2s5s curve inverted yesterday for the first time this cycle, according to Deutsche Bank.

In economic data announced earlier in the day, job openings for May fell but remained relatively high at 11.3M , above the 11M expected.

The quits rate ticked down to 2.8%, but that indicates workers are still confident, with quitting "still elevated compared to pre-pandemic levels," Indeed economist Nick Bunker tweeted. "Prior to the pandemic, the all-time low for the layoff rate was 1.1%. May was the 15th straight month the layoff rate was below that level."

In other economic news, the June ISM services index dropped less than expected to 55.3 .

"The headline ISM services index is not a reliable leading indicator of anything, as far as we can tell, but markets appear to give it some credence as a broad measure of the health of the sector," Pantheon Macro said. "For now, the message seems to be that things aren’t great, but could be much worse."

"That said, we are inclined to take seriously the signal from the employment index, which suggests that payroll growth will soon slow to just 100K or so. What really matters, though, is whether this softening persists."

Among active issues, travel stocks are among the weakest in the S&P as earnings season approaches .

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