Stocks Surge as Fed Hints at Slower Interest Rate Hikes
U.S. stocks are surging after Federal Reserve Chairman Jerome Powell hinted that the Fed might be willing to raise interest rates at a slower pace next year and more in Wednesday’s Stock Market Update. That relieved investors who were concerned that rising rates would drag down the U.S. economy and possibly bring an end to the nine-year-old bull market.
In a speech to the Economic Club of New York, Powell appeared to suggest that the Fed might consider a pause in its cycle of interest rate increases next year so it can assess the impact of higher rates. Recent remarks by Powell and other officials have made investors more hopeful that the Fed might raise interest rates at a slower pace next year.
Stocks rose in morning trading and more than doubled their gains as Powell spoke. The Dow Jones Industrial Average rose as much as 560 points. Bond yields slipped and the dollar weakened as investors anticipated lower interest rates.
After slashing interest rates to near zero before the 2008-09 financial crisis, the Fed has been steadily raising rates since the end of 2015. It’s expected to announce another increase in December. But with economic growth in the U.S. and other regions likely to slow down next year, investors are concerned that rising interest rates will hinder the economy and the bull market.
“He’s acknowledging that if you make an interest rate move today, you’re not really going to feel the effects of it for 12 to 18 months,” said Jack Ablin, chief investment officer of Cresset Wealth Advisors. “Global central bank tightening was probably the biggest risk that equity investors faced over the next four quarters, so having the Fed chairman come out and suggest they’re almost done is welcome news.”
STOCK MARKET UPDATE
The S&P 500 index surged 61 points, or 2.3 percent, to 2,743 at closing time. The S&P 500 has gained 3.6 percent this week, but would still need to rise another 7 percent to return to its record high from late September.
The Dow Jones Industrial Average jumped 618 points, or 2.5 percent, to 25,366. The Nasdaq composite rose 208 points, or 3 percent, to 7,291. The Russell 2000 index of smaller-company stocks gained 36 points, or 2.5 percent, to 1,529.
After an initial decline, bond prices turned higher, sending yields lower. The yield on the 10-year Treasury note fell to 3.04 percent from 3.07 percent earlier in the day. It stood at 3.05 percent late Tuesday. The yield on the 2-year note fell to 2.79 percent from 2.81 percent.
The dollar weakened, which sent metals prices higher. The ICE US dollar index lost 0.6 percent.
Customer-management software developer Salesforce climbed 8.5 percent to $138.39 after its earnings and revenue were stronger than analysts expected. That helped pull technology companies higher. Software maker Adobe rose 6.4 percent to $247.15. Apple picked up 2.9 percent to $179.31 and Microsoft rose 2.7 percent to $110.
Tiffany skidded 12 percent to $92.31 after it said foreign tourists, especially from China, didn’t spend as much at its stores in its latest quarter. That contributed to disappointing sales for the company. Chinese economic growth has slowed since the government clamped down on bank lending last year as part of an effort to rein in surging debt. The U.S.- China trade dispute has also contributed to the slowdown.
Signet Jewelers lost 3 percent to $51.21.
Jam and packaged food maker J.M. Smucker fell 7.5 percent to $101 after it reported a smaller profit and less revenue than analysts had expected. Smucker also pared its forecasts for the full year.
Boeing recovered a sliver of its recent losses as investigators in Indonesia discussed their probe into the crash of a Boeing 737 MAX 8. Indonesian authorities said they are still struggling to understand why the plane crashed, but added that faulty equipment and carrier Lion Air’s own safety failures had pilots fighting for control of the plane as it fell into the Java Sea on Oct. 28, killing all 189 people aboard.
The MAX is Boeing’s newest plane, and questions about the crash have pulled Boeing’s stock lower. The stock rose 4.4 percent to $332.15 Wednesday, but it’s still down 11 percent since Nov. 8, when federal regulators gave an emergency directive telling pilots how to handle incorrect data from a sensor that may have malfunctioned during the flight. Pilots for U.S. airlines have said that they were not told about a new feature in the MAX that could pitch the nose down sharply if sensors indicate that the plane is about to stall.
The dollar fell to 113.53 yen from 113.79 yen. The euro rose to $1.1376 from $1.1296.
Benchmark U.S. crude slipped 2.5 percent to $50.29 a barrel in New York. Brent crude, the standard for international oil prices, sank 2.4 percent to $58.76 a barrel in London.
Wholesale gasoline lost 1.6 percent to $1.40 a gallon. Heating oil fell 2.5 percent to $1.84 a gallon. Natural gas rocketed 10.6 percent to $14.72 per 1,000 cubic feet.
Gold rose 0.8 percent to $1,223.60 an ounce. Silver jumped 1.7 percent to $14.33 an ounce. Copper soared 3.3 percent to $2.80 a pound.
FTSE 100 in Britain fell 0.2 percent and Germany’s DAX lost 0.1 percent. France’s CAC 40 was little changed.
Japan’s benchmark Nikkei 225 rose 1 percent and South Korea’s Kospi recovered 0.4 percent. Hong Kong’s Hang Seng added 1.3 percent.
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