An Uptick In Stocks Follows The Fed's Busy Day For Central Banks

In the wake of the Fed's interest rate hike and the confirmation that the U.S. will not be expanding deposit insurance for banks, the stock market has just tentatively recovered from its drop.

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Dow Jones Industrial Average futures ended up 176 points, or 0.5%, higher than their previous closes. In the case of Nasdaq futures, the index was up 0.9% and in the case of S&P 500 futures, the index was up 0.7%. However, all three of these indexes closed lower yesterday, dropping over a percent. According to the Hang Seng Index in Hong Kong, which traded up two percent during the Asian session.

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It seems that Treasury Secretary Janet Yellen caused the markets to get nervous on Wednesday, even though Fed Chairman Jerome Powell raised the key rate by a quarter of a percentage point, as traders had expected, by saying that there were no plans to increase deposit insurance levels at banks over what is currently the limit. Following recent turmoil involving Silicon Valley Bank and Credit Suisse's collapses, the shares of bank companies dropped after the turmoil resulting from the collapses.

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In the days ahead, the Bank of England's and other central banks' interest-rate decisions on Thursday may give a better indication of how high-interest rates will rise in the future in Europe.

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"Central banks have not been deterred by stress in the banking sector, and they are still raising rates despite the current environment," said ING strategist Antoine Bouvet as he noted the end is in sight. "Almost a quarter-point could be delivered today by the Bank of England."

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Market drivers

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Despite the market's negative reaction to recent events late in the previous session, stocks gained on Thursday as investors reassessed the negative reaction of the market.

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Traders were disheartened on Wednesday following the statement made by Treasury Secretary Janet Yellen in a Senate hearing that her department had not considered or discussed "blanket" deposit insurance when describing her department's impact on the marketplace. It generated a 1.65% loss for the S&P 500, down from a more than 1% gain on Tuesday.

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It was considered one of the most important factors that calmed the financial sector and drove the latest stock market rally earlier in the week that the government was considering a wholesale backstop to bank deposits. So denying that potential support was not well received by equity bulls.

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As a result of the improving sentiment in the market on Thursday, Stephen Innes, managing partner at SPI Asset Management, believes that Powell will be proved wrong by the event.