US stocks close sharply higher as investors digest Powell’s comments

U.S. stocks rallied, posting their biggest one-day gain since 2020, after Federal Reserve Chairman Jerome Powell quashed investor fears that the central bank could consider bigger rate hikes of interest in the coming months.

Major indexes were initially little changed on Wednesday after the Fed announced it would hike interest rates by half a percentage point and begin trimming its $9 trillion asset portfolio next month. . Investors were widely expecting both moves as the conclusion of the central bank’s policy meeting neared.

What surprised some was that Powell said the Fed was not actively considering raising interest rates by 0.75 percentage points at an upcoming meeting. Fed funds futures, which traders use to track interest rate expectations, had previously shown market prices had a 95% chance that the Fed would make such a move in June.

Shares soared after Mr Powell’s remarks, with the Dow Jones Industrial Average ending up 932.27 points, or 2.8%, at 34,061.06, marking its biggest one-day gain since November 2020 The S&P 500 jumped 124.69 points, or 3%, to 4,300.17. for its best day since May 2020, while the Nasdaq Composite added 401.10 points, or 3.2%, to 12,964.86.

All three indexes had fallen earlier in the day.

“There’s a sense of relief,” said Christopher Smart, chief global strategist and director of the Barings Investment Institute.

With stocks and bonds on shaky ground lately, many investors feared the pace at which the Fed is tightening monetary policy could cause markets to stumble. Others have grappled with fears that the central bank, which is rapidly raising rates in an attempt to rein in inflation, could inadvertently tip the economy into recession.

The Fed’s messages, however, helped ease investor anxiety, according to Smart.

“We have the feeling that they are going in the right direction,” he said. The central bank, he said, showed it was taking inflation seriously, but without giving the impression that it would surprise investors with the magnitude of subsequent rate hikes.

Stocks rose across the board, with all 11 S&P 500 sectors ending higher.

Exxon Mobil and Chevron rose more than 3% each, boosted by higher oil prices.

Meanwhile, technology and consumer discretionary stocks, which had been among the biggest declines in the market earlier on Wednesday, rose. The groups had taken a hit earlier as investors facing higher interest rates turned away from companies with higher valuations. However, it staged a rebound alongside bond prices, after Mr Powell’s comments.

Alphabet grew 3.8% and parent Facebook meta platforms grew 5.4%.

Corporate earnings also boosted volatility in the market on Wednesday.

Airbnb shares rose $11.18, or 7.7%, to $156.18 after the company said it expected to report its first full-year net profit this year. Starbucks added $7.31, or 9.8%, to $81.64 after the coffee chain said profits and sales increased in the last quarter.

Federal Reserve Chairman Jerome Powell said on Wednesday the central bank had approved a half-percentage-point hike in interest rates in a bid to curb inflation that is at an all-time high for four decades. Photo: Win McNamee/Getty Images

As stocks rose, Treasury prices also rose.

The bond market had been hit by its worst rout in decades as investors grappled with accelerating inflation and the prospect of a quick interest rate hike by the Fed. The rapid rise in bond yields has added to the turmoil in the stock market this year.

Still, Mr. Powell’s comments appeared to ease the selling pressure on Treasuries on Wednesday. The yield on the benchmark 10-year Treasury note stood at 2.914%, down from 2.957% on Tuesday. Bond yields fall as prices rise.

The yield on the two-year Treasury note, which tends to be particularly sensitive to changes in the monetary policy outlook, also fell. It ended at 2.614%, down from 2.768% on Tuesday.

Earlier Wednesday, other officials expressed confidence in the economic situation. The US economy remains strong despite contracting in the first quarter of this year, Treasury Secretary Janet Yellen said at the Wall Street Journal’s Council of CEOs summit in London.

Traders worked on the floor of the New York Stock Exchange on Monday.


Photo:

Spencer Platt/Getty Images

Overseas, stocks were mostly lower. The pancontinental Stoxx Europe 600 index lost 1.1%. Hong Kong’s Hang Seng also fell 1.1% and South Korea’s Kospi edged down 0.1%. Markets in mainland China and Japan were closed for holidays.

In commodity markets, oil prices rose after the European Union proposed to ban Russian crude imports within six months and ban imports of refined petroleum products from Russia by the end of the year. U.S. crude oil rose 5.3% to $107.81 a barrel, posting its biggest one-day gain since mid-April.

Write to Akane Otani at [email protected] and Caitlin Ostroff at [email protected]

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