Stocks Soar on Powell's Remarks About Tightening Slowdown

Stocks rallied across the board as Jerome Powell signaled a slowdown in the pace of tightening as early as December, while indicating more hikes to fight inflation. Bond yields slumped with the dollar

Amid all the optimism, the S&P 500 closed at a two-month high of 4,080 (up roughly 3.1% for the day), notching its longest monthly winning streak since August 2021. The gauge also breached its 200-day moving average: a threshold seen by some analysts as heralding more gains.

The Nasdaq 100 jumped about 4.5%. The Dow Jones Industrial Average was up 20% from its September low.

Bond traders dialed back their expectations for how high they think the Fed might need to push its benchmark, with swap markets suggesting the key overnight rate might peak below 5%.

Powell’s comments, in a speech Wednesday at the Brookings Institution in Washington, likely cement expectations for the Fed to raise interest rates by 50 basis points when they meet Dec. 13-14, following four straight 75 basis-point moves.

He also added that rates are likely to reach a “somewhat higher” level than officials estimated in September.

Comments

Callie Cox at eToro: “Powell just said what the market has been thinking all along. But before you get too excited, remember that this is a shift, not a pivot. Powell has been clear that rates could stay high for some time. At this point, it may be time to start sowing seeds for the next bull market, but try not to get carried away. High rate environments favor quality companies that prove they can execute, so keep that in mind as you pile back into risky markets.”

Jeffrey Roach at LPL Financial: “Much of Chair Powell’s comments were benign and predictable. Overall, this speech will likely be bullish for the markets in the near term.”

What’s Next?

Officials have signaled they plan to raise their benchmark rate by 50 basis points at their final meeting of the year on Dec. 13-14, after four successive 75 basis-point hikes which have lifted it to a 3.75% to 4% target range.

Ahead of Powell’s remarks, Fed Governor Lisa Cook said it would be prudent for the central bank to make smaller hikes as it determines how high it will need to go to tame price gains.

Traders also scoured several economic reports, with key gauges of US activity painting a mixed third-quarter picture. Job openings fell in October — a hopeful sign for the Fed as it seeks to curb demand.

The figures precede Friday’s jobs report, which is currently forecast to show employers added 200,000 workers to payrolls in November. Economists are expecting the unemployment rate to hold at 3.7%, and for average hourly earnings to moderate.