Wall St rallies as Fed’s Powell hints at easing inflation after rate hike

Wall St rallies as Fed's Powell hints at easing inflation after rate hike
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  • The Federal Reserve increased the discount rate by 25 barrels
  • For the first time, Powell says inflation has begun
  • Indexes rose: Dow 0.02%, S&P 1.05%, Nasdaq 2%

Feb 1 (Reuters) – The S&P 500 and Nasdaq closed sharply lower on Wednesday after Federal Reserve Chairman Jerome Powell acknowledged that inflation is starting to ease in a statement after the U.S. central bank raised interest rates by a quarter point.

Wall Street’s main indexes lost ground immediately after announcing the Fed’s interest rate hike decision. His statement also said “continued increases” in rates would be appropriate.

But after Powell began speaking to reporters, the S&P added 1% and the Nasdaq added 2%.

According to Angelo Kourkafas, investment strategist at Edward Jones in St. Louis, investors were encouraged by Powell’s response to easing financial conditions, such as rising stocks and low bond yields in recent months.

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“He had an opportunity to deliver a hawkish message and he didn’t use it. He could have said the markets were overexcited and he didn’t take the opportunity. Instead he said a lot of tightening had already happened,” he said. Kurkafas.

Investors saw his suggestion that two more rate hikes could be a “placeholder,” according to the strategist, as Powell said for the first time that he might acknowledge that inflation is starting to take hold.

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

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

Of the S&P 500’s 11 major industrial sectors, only energy was down on the day (.SPNY)Interest-rate-sensitive tech stocks fell 1.9% (.SPLRCT) It was the biggest gainer with an increase of 2.3%.

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

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

US futures were still pricing in rate cuts this year, and Fed funds were seen at 4,403% through the end of December, the same as before the meeting.

With recent readings showing inflation easing, the Fed is also looking at data that will determine the strength of the labor market and the pace of wage growth.

But the date is indicated Jobs in the USA unexpectedly rose in December ahead of the Labor Department’s comprehensive nonfarm payrolls report for January due on Friday.

Separate economic data showed U.S. manufacturing concluded a contract rose further in January as higher rates dampened demand for goods.

All three indexes had a strong start to the year with the S&P (.SPX) and the Dow (.DJI) Investors are seeing their first gains for January since 2019 as investors return to markets that were crushed by the hawkish Fed the previous year.

Advancers outnumbered decliners on the NYSE by a ratio of 2.86 to 1; A 2.28 to 1 ratio on the Nasdaq favored the 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 a 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; Edited by Sriraj Kalluvila, Maju Samuel and David Gregorio

Our standards: Thomson Reuters Trust Principles.

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