Tech stocks rallied Wednesday following the Federal Reserve's latest interest rate increase after Fed Chair Jerome Powell suggested signs of "disinflation" are building in the economy.

When the closing bell rang on Wall Street, the technology-heavy Nasdaq Composite (^IXIC) was higher by 2%, leading the charge higher for markets following Powell's comments.

The S&P 500 (^GSPC) closed higher by 1%, while the Dow Jones Industrial Average (^DJI) rose 0.03%, or just 8 points. The Dow was weighed down by energy stocks, which remained under pressure Wednesday as the price of WTI crude oil fell 3% to around $76.50 per barrel.

On Wednesday afternoon, the Federal Reserve announced its latest interest rate increase, a move that brought the Fed's benchmark policy rate to the highest level since October 2007. The Fed's move represented its smallest increase in nearly a year.

In its statement, the Fed noted inflation pressures are moderating but said inflation "remains elevated" as price pressures prove persistent across the economy. But in his press conference, Powell said that "for the first time," the Fed could say the "disinflationary process has started."

Investors took Powell's comments as a sign the Fed could be closer to pausing its current rate hiking campaign. A pause in interest rate increases is seen by investors as a positive sign for riskier assets like tech stocks, as detailed by Yahoo Finance's Julie Hyman earlier this week.

Wednesday's rally was punctuated by Peloton (PTON), which saw shares rise 26% following news out Wednesday morning the company decreased its cash burn to $94 million in its latest quarter, down from $747 million nine months ago. On an adjusted basis, the company reported $8 million in free cash flow during the holiday quarter.

"If you’ve been wondering whether or not Peloton can make an epic comeback, this quarter's results show the changes we’re making are working," CEO Barry McCarthy wrote in a letter to shareholders.

A pandemic darling, Peloton was joined by Cathie Wood's flagship ARK Innovation ETF (ARKK), which rose 4% on Wednesday, in enjoying a Fed-induced bump.

These gains continued the market action that has predominated this year, as stocks capped off a strong start to the year on Tuesday, with the S&P 500 logging its best January since 2019 while the Nasdaq 100 enjoyed its strongest January rally since 2001, gaining over 10%.

With earnings season in full flight, however, the news wasn't all good on Wednesday, with another disappointing quarter from Snap (SNAP) out Tuesday night garnering the most investor attention.

Shares of the social media company fell 10% after the company told investors its internal forecasts assume revenue in its current quarter will fall between 10% and 2% from a year ago.

Match Group (MTCH) and Electronic Arts (EA) shares were also down 5% and 9%, respectively, on Wednesday after reporting disappointing quarters on Tuesday afternoon.

On the economic data side, new data on private payroll growth from ADP showed private employers added 106,000 jobs last month, fewer than the 170,000 expected by economists.

In its report, ADP said weather impacted its measurement of the labor market, citing floods in California and snow storms in central and eastern parts of the country during the reference week.

"In January, we saw the impact of weather-related disruptions on employment during our reference week. Hiring was stronger during other weeks of the month, in line with the strength we saw late last year," said ADP chief economist Nela Richardson.

Data on job openings for December out Wednesday suggested demand for workers remains robust, as 11 million jobs were available at the end of the month, up from 10.4 million at the end of November.

Elsewhere in economic data, readings on the manufacturing sector from S&P Global and the Institute for Supply Management showed activity remained depressed in the first month of 2023.

The ISM's latest manufacturing PMI reading fell to its lowest level since May 2020, which economists see as another sign recession pressures continue to build in the U.S. economy.

Writing in a note to clients on Wednesday, Andrew Hunter, senior U.S. economist at Capital Economics, wrote that a more detailed looked at the ISM's report suggests "domestic economic weakness is increasingly the main driver of the manufacturing sector’s woes and, overall, the ISM report reinforces our view that the US economy is close to recession."

S&P Global's reading showed manufacturing activity deteriorated at a slightly slower rate in January than December, but still indicates "a worryingly steep rate of decline in the health of the goods producing sector," according to Chris Williamson, chief business economist at S&P Global Market Intelligence.

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