Wall St rises as Fed’s Powell nods to slowing inflation after rate hike

  • The Federal Reserve raises interest rates by 25 bps
  • Powell says that for the first time disinflation has started
  • Indexes 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 beginning to ease, in comments he made after a rate hike by the U.S. Federal Reserve.

Wall Street’s major indexes had lost ground immediately after the Fed announced its rate hike decision. The statement also said that “ongoing increases” of prices would be appropriate.

But indexes bounced off lows and continued to gain ground soon after Powell began speaking to reporters, with the S&P ending up 1% and the Nasdaq up 2%.

Investors were encouraged by Powell’s response to a question about easing economic 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 an opportunity to deliver a hawkish message and didn’t take it. He could have said the markets are getting too excited and he didn’t take the opportunity. Instead he said a lot of tightening has already happened,” he said Kourkafas .

Since Powell said he could for the first time acknowledge that disinflation had begun 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 (.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 (2.3IX)7 points. 2%, to 11,816.32.

The afternoon rally saw the S&P record its highest close since August 25, while the Nasdaq had its highest close since September.

Of the S&P 500’s 11 major industrial sectors, only energy ended the day lower (.SPNY), down 1.9%, while interest-sensitive technology stocks (.SPLRCT) were the biggest gainers, up 2.3%.

Investors were largely focused on the Fed’s path forward, as the size of the hike for the year’s first policy meeting was in line with expectations for rapid hikes in 2022 including a 50 basis point rate hike in December.

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

US futures still priced 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 have indicated that inflation is easing, and the Fed is also looking at data that will determine the resilience of the labor market and the pace of wage growth.

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

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

All three indices had a strong start to the year, with the S&P (.SPX) and Dow (.DJI) witnessing their first January gains since 2019 as investors returned to markets, which were hurt the previous year by a hawkish Fed.

Advances outnumbered decliners on the NYSE by a ratio of 2.86 to 1; on the Nasdaq, a ratio of 2.28 to 1 favored advances.

S&P 500 posted 24 new 52-week highs and no new lows; The Nasdaq Composite registered 136 new highs and 23 new lows.

About 13.7 billion shares changed hands on US exchanges, compared with the 11.5 billion daily average 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: Thomson Reuters Trust Principles.

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