NEW YORK, Feb 2 ― The S&P 500 and the Nasdaq closed sharply higher yesterday after Federal Reserve chair Jerome Powell acknowledged that inflation was starting to ease, in remarks he made following a quarter-point rate hike by the US central bank.
Wall Street's major indexes had lost ground immediately after the Fed announced its rate hike decision. Its statement also said “ongoing increases” to rates would be appropriate.
But the indexes bounced off their lows and kept gaining ground soon after Powell started speaking to reporters with the S&P ending up 1 per cent and the Nasdaq adding 2 per cent.
Investors were encouraged by Powell's answer to a question about easing financial conditions such as rising equities and falling bond yields in recent months, according to Angelo Kourkafas, investment strategist at Edward Jones, St Louis.
“He had an opportunity to relay a hawkish message and didn't take it. He could've said that markets are getting overly excited and he didn't take the opportunity. Instead he said a lot of tightening has already happened,” said Kourkafas.
Since Powell said he could acknowledge for the first time that disinflation had started to happen, investors saw his suggestion that there could be two more rate hikes as a “placeholder”, the strategist said.
The Dow Jones Industrial Average rose 6.92 points, or 0.02 per cent, to 34,092.96, the S&P 500 gained 42.61 points, or 1.05 per cent, to 4,119.21 and the Nasdaq Composite added 231.77 points, or 2 per cent, to 11,816.32.
The afternoon rally had the S&P registering its highest closing level since August 25 while the Nasdaq posted its highest close since September.
Of the S&P 500's 11 major industry sectors only energy ended the day lower, down 1.9 per cent, while interest rate sensitive technology shares were the biggest gainers, up 2.3 per cent.
Investors were mostly focused on the Fed's path forward, as the size of increase for 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 terminal rate of 4.892 per cent in June compared with bets for 4.92 per cent just before the Fed's statement.
US futures were still pricing in rate cuts this year with the fed funds rate seen at 4.403 per cent by the end of December, the same as before the meeting.
Recent readings have indicated that inflation is easing, with the Fed also looking at data that will determine the resilience of the labour market and the pace of wage growth.
But data showed US job openings unexpectedly rose in December ahead of the Labour Department's comprehensive report on nonfarm payrolls for January due on Friday.
Separate economic data showed US manufacturing contracted further in January as higher rates stifled demand for goods.
All three indexes had a strong start to the year, with the S&P and the Dow witnessing their first gain for January since 2019 as investors returned to markets, which were bruised in the previous year by a hawkish Fed.
Advancing issues outnumbered declining ones on the NYSE by a 2.86-to-1 ratio; on Nasdaq, a 2.28-to-1 ratio favoured 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 in US exchanges, compared with the 11.5 billion daily average over the last 20 sessions. ― Reuters
