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Wall Street rises as investors digest Powell comments

2023-02-07T21:01:42Z

U.S. Federal Reserve Chair Jerome Powell addresses reporters after the Fed raised its target interest rate by a quarter of a percentage point, during a news conference at the Federal Reserve Building in Washington, U.S., February 1, 2023. REUTERS/Jonathan Ernst/File Photo

U.S. stocks closed higher after a choppy trading session on Tuesday, as investors digested comments from Federal Reserve Chair Jerome Powell about how long central bank may need to tame inflation.

Powell said 2023 should be a year of “significant declines in inflation.”

His comments fed investor hopes for less aggressive monetary policy that were stymied after a strong U.S. jobs report last Friday. “We didn’t expect it to be this strong,” Powell said at the Economic Club of Washington, referring to the nonfarm payrolls report for January, but it “shows why we think this will be a process that takes quite a bit of time.”

“Powell expects they’re not going to be cutting rates anytime soon, but that there is a good path, that they’re accomplishing what they need to accomplish,” said Shawn Cruz, head trading strategist at TD Ameritrade.

Wall Street’s main indexes fluctuated wildly during and after Powell’s remarks, and analysts said volatility is unlikely to dissipate soon.

“Until we see softening and inflation throughout the economy and throughout the globe, it’s going to be hard to push the markets up in a decisive fashion,” said Carol Schleif, deputy chief investment officer at BMO Family Office.

The tech-heavy Nasdaq (.IXIC) rallied and the S&P 500 (.SPX) also got a boost from Microsoft Corp (MSFT.O). The company’s shares rose as it unveiled an integration of ChatGPT, a chatbot from OpenAI, into its products.

Following Powell’s comments, Morgan Stanley said it added 25 basis point to its forecast for the May policy meeting, but continued to expect the first 25 basis point rate cut for December, 2023.

The Fed raised interest rates by 25 basis points last week, with markets now pricing in a peak rate above 5% after Friday’s strong jobs data.

U.S.-listed shares of Baidu Inc soared as the Chinese search engine said it would conclude testing of its ChatGPT-style project “Ernie Bot” in March.

The top 11 sectors on the S&P 500 presented mixed performances, but technology (.SPLRCT) was among top gainers.

Among top gainers on the Dow Jones Industrial Average (.DJI), Boeing Inc (BA.N) went up after the U.S. planemaker confirmed it expects to cut about 2,000 white-collar jobs.

According to preliminary data, the S&P 500 (.SPX) gained 52.99 points, or 1.29%, to end at 4,164.07 points, while the Nasdaq Composite (.IXIC) gained 225.16 points, or 1.89%, to 12,112.61. The Dow Jones Industrial Average (.DJI) rose 266.99 points, or 0.79%, to 34,158.01.

On Monday, U.S. stock indexes were dragged by views that rates would stay higher for longer. Still, all three major averages are in the black for 2023, with the Nasdaq adding over 15%, led by a revival in battered mega-cap growth stocks.

So far, more than half of the companies on the S&P 500 have reported quarterly earnings, with 69.1% of them beating expectations, according to Refinitiv. Still, analysts expect fourth-quarter earnings to decline 3.1%.

DuPont De Nemours Inc (DD.N) jumped on a higher-than-expected quarterly profit supported by higher pricing for its products.

Bed Bath & Beyond (BBBY.O) plunged as the home-goods retailer seeks a $1 billion raise in a last-ditch effort to avoid bankruptcy.

Later on Tuesday, U.S. President Joe Biden will deliver the annual State of the Union address to a joint session of Congress.