Comments from Federal Reserve Chair Jerome Powell sparked a massive rally in the stock market on Wednesday, as the chief U.S. monetary policymaker signaled that the Fed could begin slowing its interest rate increases as early as the upcoming December meeting.
The Nasdaq Composite (COMP.IND) closed +4.4%, the S&P 500 (SP500) finished +3.1% and the Dow (DJI) ended +2.2%.
“What began as a humdrum day turned into a rather exciting one for investors, particularly those who are bullish about the future,” Avaring Capital Advisors’ Daniel Jones told Seeking Alpha.
However, Jones added that “investors should see both the good news and bad news” in Powell’s comments. “The good news is that we are likely to top out at lower-than-anticipated interest rates by the time this inflationary cycle is over. But on the other hand, it does deserve a cautious note because it could also signal concerns of economic weakness on the horizon.”
While Powell warned that the Fed might have to retain restrictive policy for some time, as policymakers needed to see “substantially more evidence” of falling inflation, he buoyed markets with a less-hawkish stance on the pace of rate increases and by raising hope that a soft landing was “very plausible.”
“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting,” the Fed chief said in prepared remarks for an event hosted by the Hutchins Center on Fiscal and Monetary Policy.
Turning to the fixed-income market, Powell’s comments also sparked buying in bonds, driving yields lower. The 10-year Treasury yield (US10Y) dropped 6 basis points to 3.69%. The 2-year yield (US2Y) retreated 11 basis points to 4.36%.
Powell’s comments dominated the day’s trading, sparking a rally after they began hitting the wires during the afternoon. However, investors also digested new economic data as well, including an update on the labor market ahead of Friday’s employment report.
Data from payroll processor ADP showed that the private sector added 127K jobs in November, below the 200K increase that economists had expected.
Meanwhile, a separate report showed that October job openings also came in below expectations. The figure dipped to 10.334M in the month, compared to an estimate of 10.5M.
Among active stocks, CrowdStrike (CRWD) bucked the overall positive trend on the day, dropping sharply after its quarterly report included weak guidance.