Wall St rallies as Fed’s Powell nods to easing inflation after rate hike

  • The Federal Reserve raises rates by 25 basis points
  • Powell says for the first time disinflation has started
  • Indices up: Dow 0.02%, S&P 1.05%, Nasdaq 2%

Feb 1 (Reuters) – The S&P 500 and Nasdaq closed sharply higher on Wednesday after Federal Reserve Chairman Jerome Powell acknowledged that inflation was starting to subside, in remarks he made to following a quarter-point rate hike by the US central bank.

Major Wall Street indexes lost ground immediately after the Fed announced its rate hike decision. His statement also said “continued increases” in rates would be appropriate.

But the indices rebounded from their lows and continued to gain momentum shortly after Powell began speaking to reporters, with the S&P ending up 1% and the Nasdaq adding 2%.

Investors were encouraged by Powell’s response to a question about easing financial conditions such as rising stocks and falling bond yields in recent months, according to Angelo Kourkafas, investment strategist at Edward Jones, St. Louis.

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“He had the opportunity to relay a hawkish message and didn’t take it. He could have said the markets were getting too excited and he didn’t take advantage of it. Instead, he said a lot of tightening had already happened,” Kourkafas said.

Since Powell said he could recognize for the first time that disinflation had started to happen, investors have seen his suggestion that there could be two more rate hikes as a “placeholder,” said the strategist.

The Dow Jones Industrial Average (.DJI) rose 6.92 points, or 0.02%, to 34,092.96, the S&P 500 (.SPX) gained 42.61 points, or 1.05%, to 4,119.21 and the Nasdaq Composite (.IXIC) added 231.77 points, or 2%, to 11,816.32.

The afternoon rally saw the S&P post its highest closing level since August 1st. 25 while the Nasdaq posted its highest close since September.

Of the 11 major industry sectors in the S&P 500, only energy ended the day lower (.SPNY), down 1.9%, while interest-rate-sensitive tech stocks (.SPLRCT) lagged. the biggest winners, up 2.3%.

Investors focused primarily on the Fed’s way forward as the scale of the increase for its first policy meeting of the year was in line with expectations after rapid increases in 2022, including a hike in interest rates. 50 basis points in December.

After the press conference, money markets were betting on a terminal rate of 4.892% in June against bets at 4.92% just before the Fed statement.

US futures were still pricing in rate cuts this year, with the fed funds rate at 4.403% at the end of December, the same as before the meeting.

Recent readings indicated that inflation is slowing, with the Fed also reviewing data that will determine the resilience of the labor market and the pace of wage growth.

But data showed U.S. job openings unexpectedly rose in December ahead of the Labor Department’s full report on nonfarm payrolls for January, due Friday.

Separate economic data showed the US manufacturing sector contracted further in January as rising rates stifled demand for goods.

All three indices had a strong start to the year, with the S&P (.SPX) and Dow (.DJI) posting their first gain for January since 2019 as investors returned to markets that had been battered the previous year. by a hawkish Fed. .

Advancing issues outnumbered declining ones on the NYSE by a ratio of 2.86 to 1; on the Nasdaq, a ratio of 2.28 to 1 favored advancers.

The S&P 500 posted 24 new 52-week highs 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 over the past 20 sessions.

Reporting by Sinéad Carew and Stephen Culp in New York, Johann M Cherian and Shreyashi Sanyal in Bengaluru; Additional reporting by Ankika Biswas; Editing by Sriraj Kalluvila, Maju Samuel and David Gregorio

Our standards: The Thomson Reuters Trust Principles.


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