Stocks hold steady while bond yields swing after Fed pauses rate hikes

U.S. investors saw mixed signals on Wednesday as stock prices remained stable while bond yields moved sharply in opposite directions. The Federal Reserve decided to hold its main interest rate steady, a move that left the S&P 500 index up 0.3%. The decision followed a meeting where two officials voted to raise rates, but the remaining members preferred to wait and assess current economic conditions before acting further.

The bond market reacted more intensely than the stock market to the central bank's decision. The yield on two-year Treasury securities initially climbed above 4.79% from 4.70% late Tuesday after reports emerged that two Fed officials favored a hike. That move reversed quickly after Fed Chairman Kevin Warsh stated the central bank wants to see how conditions evolve before making its next move. The yield dropped as low as 4.69% during the session.

Warsh noted that loan rates have climbed and that lenders and investors have become more discerning in their lending practices. He said the overwhelming judgment among Fed officials was that monetary medicine is starting to work some. He added that broadly, these developments go in the direction of helping the Fed achieve its goals of a healthy job market and relatively low inflation. The central bank had raised its main interest rate last month for the first time in three years to combat inflation, which has remained above the 2% target for years.

Traders pared back their bets on future rate hikes by next summer, according to CME Group data. The yield on 10-year Treasury securities also fluctuated but ended slightly higher at 5.02% from 4.99% late Tuesday. Yields received an upward push from rising oil prices, with Brent crude climbing 2% to $111.64 per barrel amid ongoing uncertainty in the Middle East.

Corporate earnings provided support for specific stocks despite the higher interest rates that generally pressure equity valuations. GE HealthCare Technologies climbed 6.6% after beating analysts' expectations for summer profit and revenue. The company also raised its full-year forecasts. Etsy rose 5.4% after its profit for the latest quarter exceeded forecasts. CEO Kruti Patel Goyal said the platform saw growth in active buyers from prior-year levels for the first time in two years.

Artificial intelligence stocks stabilized following recent volatility caused by concerns over high borrowing costs. Micron Technology rose 5.9% and was the strongest force lifting the S&P 500. The gain followed a 10.9% surge in South Korea for memory chip maker SK Hynix, which said demand for its products will outpace supply through 2030.

Wendy's shares jumped 15.1% after Trian Fund Management, run by Nelson Peltz, offered to buy the fast-food chain. In contrast, Robinhood Markets sank 3.3% after reporting weaker profit and revenue than analysts expected. Boston Scientific fell 5.8% despite a milder profit drop than anticipated, as its forecast for the current quarter missed expectations.

By the close, the S&P 500 rose 21.38 points to 7,743.98. The Dow Jones Industrial Average added 97.53 points to reach 52,475.10, and the Nasdaq composite climbed 72.04 to 26,549.85. International markets also reacted, with South Korea's Kospi jumping 6.6% and Japan's Nikkei 225 rising 1.1%.