Stocks soared to their biggest gain in two years on Wednesday after Federal Reserve Chairman Jerome Powell downplayed the likelihood of an even bigger rate hike than the one just announced on Wednesday. .
That eased investor concerns that the central bank was on course for a massive three-quarters of a percentage point hike at its next meeting in June. Powell’s comments came after the Fed announced ain its reference rate as part of its fight against inflation.
The Dow Jones Industrial Average jumped 932 points, or 2.8%, to close at 34,061. The S&P 500 gained nearly 3%, while the tech-heavy Nasdaq jumped 3.2%. The S&P had its best daily performance since May 2020, according to FactSet.
The Federal Reserve raises interest rates to fight against the, with the aim of dampening the demand for goods and services by making it more expensive to borrow. Investors feared the Fed would raise rates above the – which marks the biggest increase since 2000 – and reported relief from the market recovery.
“Even though the Fed chief was seen as responding to market expectations for rate hikes this year and galvanizing the wider economy for the effect of rate hikes, financial markets seemed to react to the fact that the Fed was not considering hikes of 0.75%,” AXA noted. David Page, head of macroeconomic research at IM, in a research note.
Powell indicated that the central bank is considering additional rate hikes of 0.5% at its next two meetings, but added that the Fed is “is not actively considering” rate hikes of 0.75%, Page added.
Big winners: Tech, oil, banks
Investors are wondering if the Fed can pull off the delicate dance to slow the economy enough to halt high inflation, but not so much as to cause a slowdown. Still, the market applauded the Fed’s latest moves. Wall Street also took note of Powell’s forecast that inflation may soon be tempered, said Quincy Krosby, chief equity strategist, LPL Financial.
“The market applauds Chairman Powell’s comments that the economy remains strong thanks to strong corporate balance sheets and continued cash-rich consumers,” Krosby said in a research note. “Furthermore, he suggested that perhaps the worst of the sharp shift in inflationary pressures may be about to ease.”
About 85% of S&P 500 stocks posted gains, with technology companies fueling much of the advance. Apple rose 4.1%. Other industries that enjoyed gains on Wednesday include banks and credit card companies, which are expected to raise lending rates in response to the Fed’s rate hike.
Energy stocks were among the biggest gainers after a 5.3% rise in the price of U.S. crude oil after Europe moved closer to an embargo on Russian oil as that country continues its war on the ‘Ukraine. Any embargo could strain oil supplies and push prices even higher. Exxon Mobil rose 4%.
With Associated Press reporting.