US Stocks Rise As Fed Chairman Eyes Slower Interest Rate Hike Pace

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On Wednesday, Wall Street stocks rallied after Federal Reserve Chairman Jerome Powell said the pace of interest rate hikes could slow from December despite the fact that he views progress against inflation as largely inadequate.

Following Mr. Powell’s comments, the S&P 500 moved into positive territory, rising 0.64% to 3,982.96 points, and the Nasdaq extended its gains after adding 1.30% to reach 11,126.16 points.

Although it remains down around 16% so far this year, the benchmark index is on track for a second straight month of gains.

The blue-chip Dow Jones Industrial Average closed over 20% above its September low as signs of cooling inflation in the US also suggested the central bank could become less aggressive with interest rate hikes.

At the end of the Wednesday trading session, after a 2,18% rise, the index was at 34,589.77 points. The tech-heavy Nasdaq and the S&P 500 closed 4.41% and 3.09% higher, respectively.

Afternoon trading saw Apple shares, which fell sharply last week, rising 1.5%, while Nvidia gained 2.8%.

In addition, shares of automaker Tesla Inc soared 2.3% following China Merchants Bank International’s report that the company’s November sales in the country had been boosted by price cuts and incentives offered on two of its models.

Biogen Inc also saw a jump in its shares, which rose 4.3% after a closely watched trial showed that its experimental Alzheimer’s drug could slow cognitive decline.

Within the S&P 500, advancing issues outperformed those falling by a 1.5-to-one ratio. Moreover, it posted six new highs and one new low, while the tech-heavy Nasdaq Composite reported 61 new highs and 144 new lows.

Stock futures were also up in early trading on Thursday, with those linked to the Dow Jones rising 0.07% to add 23 points.

In the same session, futures tied to the S&P 500 rose 0.22%, while those linked to the Nasdaq Composite gained 0.24%.

The higher overnight moves came after a strong rally during regular trading that led the Nasdaq Composite and the S&P to recover after a three-day losing streak. It followed Mr. Powell’s remarks, as the Fed chairman appeared to confirm a slowdown in monetary policy tightening.

Endorsing other officials’ recent statements and suggestions in the minutes from the last Fed meeting in November, Mr. Powell said he believed the central bank was in a position to reduce the size of rate hikes as early as December.

However, the Fed Chairman warned that monetary policy could remain tight for some time until inflation shows real signs of progress.

Speaking at the Brookings Institution, Mr. Powell insisted that there was still a long way to go to restore price stability despite some recent promising developments.

The Fed Chairman also explained that interest rate increases, reductions in Fed bond holdings, and other policy moves often take time to work their way through the system.

Therefore, moderating the pace of interest rates makes sense as a level of restraint that is sufficient to reduce inflation approaches, he added.

Mr. Powell went on to say that the time to ease the pace of interest rate increases could come as soon as next month’s meeting.

The head of global policy and central bank strategy at Evercore ISI, Krishna Guha, described Wednesday’s rise in the stock market as a “relief rally.”

Mr. Guha said many investors expected Mr. Powell to “take a max hawkish sledgehammer” to the recent easing of financial conditions, but that overhang is now gone.

Moreover, the Fed Chairman’s comments showed faltering signs that inflation has started to ebb and the job market is easing after an ultra-tight period.

In early November, a better-than-expected report on consumer prices showed that inflation had risen below estimates.

Also, on Wednesday, separate reports showed that private payroll had risen below expectations as job openings declined.

The ADP National Employment Report showed that private employment had increased by 127,000 in November. While the number is below the expected 200,000 jobs, it suggests that labor demand is cooling amid rising interest rates.

Globalt Atlanta’s portfolio manager explained that the below-expected ADP jobs number fits with the narrative that the Fed has room to start slowing its rate hikes, which would benefit rate-sensitive assets.

In addition, another report showed job openings in the US fell from 10.687 million in September to 10.334 million in October, while one reading suggested that the country’s economy had recovered stronger than expected during the third quarter.

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