Wall Street rises with Powell’s gesture from the Fed to ease inflation after the interest rate hike

(Reuters) – The S&P 500 and the Nasdaq closed sharply higher on Wednesday after Federal Reserve Chairman Jerome Powell acknowledged that inflation had begun to ease in comments he made after the US central bank raised interest rates by a quarter point.

Major indices on Wall Street fell immediately after the Federal Reserve announced its decision to raise interest rates. Its statement also said that “continued increases” in interest rates would be appropriate.

But indexes rebounded from their lows and extended gains shortly after Powell began speaking to reporters, with the S&P up 1% and the Nasdaq up 2%.

Investors were encouraged by Powell’s answer to a question about facilitating financial conditions as stocks have risen and bond yields have fallen in recent months, according to Angelo Korkavas, an investment analyst in Edward Jones, St. Louis.

“He had the opportunity to deliver a hawkish message and he didn’t take advantage of it. He could have said that the markets got too excited and he didn’t take the chance. Instead he said a lot of the tightening has already happened,” he said. curcumas.

Since Powell said he could admit for the first time that inflation was starting to happen, investors have seen his suggestion that there could be two more rate hikes as a “placeholder,” the strategist said.

Dow Jones Industrial Average (.DJI) The Standard & Poor’s Index rose 6.92 points, or 0.02%, to 34,092.96. (.SPX) rose 42.61 points, or 1.05%, to 4,119.21, the Nasdaq Composite Index (nineteenth) It added 231.77 points, or 2%, to 11,816.32 points.

In the afternoon, the S&P had its highest close since August 25 while the Nasdaq had its highest close since September.

Of the 11 major industrial sectors of the S&P 500, only energy ended the day lower. (.SPNY)down 1.9%, while the interest rate-sensitive technology shares (.SPLRCT) It was the biggest gainer, up 2.3%.

Investors focused mostly on the Fed’s path forward, as the size of the increase at its first policy meeting of the year was in line with expectations after rapid increases in 2022 including a December rate hike of 50 basis points.

After the press conference, money markets were betting on a final rate of 4.892% in June compared to bets on 4.92% before the Fed’s statement.

US futures were still pricing in interest rate cuts this year as the federal funds rate saw 4.403% by the end of December, the same as it was before the meeting.

Recent readings indicated that inflation is easing, as the Fed is also looking at data that will determine the elasticity of the labor market and the pace of wage growth.

But the data showed that US employment rose unexpectedly in December ahead of the Labor Department’s comprehensive report on non-farm payrolls for January due on Friday.

Separate economic data showed that US manufacturing contracted further in January as higher rates choked off demand for commodities.

All three indices had a strong start to the year, with the S&P (.SPX) and daw (.DJI) They saw their first gains for the month of January since 2019 as investors returned to the markets, which had been hit the previous year by the hawkish Federal Reserve.

Advance issues outnumbered declining issues on the NYSE by a ratio of 2.86 to 1; On the Nasdaq, a ratio of 2.28 to 1 favored advanced stocks.

The S&P 500 posted 24 new highs in 52 weeks and no new lows. The Nasdaq Composite recorded 136 new highs and 23 new lows.

About 13.7 billion shares changed hands on US exchanges, compared to the daily average of 11.5 billion shares over the last 20 sessions.

Additional reporting by Sinad Karoo and Stephen Culp in New York and Johann M. Cherian and Shriyashi Sanyal in Bengaluru; Additional reporting by Anika Biswas; Editing by Sriraj Kaluvella, Magu Samuel and David Gregorio

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