Stocks Snap Two-Day Rally After Powell’s Remarks: Markets Wrap

(Bloomberg) -- US stocks snapped a two-day rally after Federal Reserve Chair Jerome Powell reiterated his hawkish stance while also signaling the central bank is getting “close” to reaching the end of a tightening cycle that pushed rates from near zero to 4.5% since March.

While Wednesday’s volatile session saw the S&P 500 and the Nasdaq 100 swing between gains and losses, both indexes ended lower after the Fed raised rates by half a percentage point and signaled more increases are to come. Treasuries whipsawed, with the policy-sensitive two-year yield initially surging after the Fed’s decision, only to almost entirely erase that jump later in the day. The dollar dropped for a second session.

Powell indicated the Fed intends to keep at its battle with inflation, as officials projected rates would end next year at 5.1%. But his assertion that the cycle could be near an end was enough to ease the worst of the stock declines on Wednesday. The Fed also projects economic growth will slow next year, with inflation remaining well above its 2% target. 

Read More: Bond Traders Dismiss Fed’s Hawkish Tone, Bet on 2023 Rate Cuts

Read More: Powell Says Fed Still Has a ‘Ways to Go’ After Half-Point Hike

“Powell was crystal clear that the Fed is basically indifferent to inter-meeting moves in financial conditions but that they control those conditions over time,” said Gerard MacDonell of 22V Research.

Some investors saw the silver lining in Powell’s remarks. 

“The most encouraging of Powell’s comments is the acknowledgment of how core inflation is coming down more than expected, as evidenced by new rental leases coming at levels significantly below data being used to calculate core CPI,” said Bryce Doty, senior vice president at Sit Investment Associates. “This is a big deal given that housing is the largest component of core CPI. Therefore, we wouldn’t be surprised if Powell uses this as a primary reason for halting rate increases at their May meeting.”

Following the Fed, the European Central Bank will announce its rate decision Thursday. Markets will also contend with decisions from the Bank of England and monetary authorities in Mexico, Norway, the Philippines, Switzerland and Taiwan.

Key events this week:

• China medium-term lending, property investment, retail sales, industrial production, surveyed jobless, Thursday
• ECB rate decision and ECB President Lagarde briefing, Thursday
• Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
• US cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
• Eurozone S&P Global PMI, CPI, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.6% as of 4 p.m. New York time
• The Nasdaq 100 fell 0.8%
• The Dow Jones Industrial Average fell 0.4%
• The MSCI World index rose 1.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%
• The euro rose 0.4% to $1.0679
• The British pound rose 0.5% to $1.2424
• The Japanese yen rose 0.2% to 135.26 per dollar

Cryptocurrencies

• Bitcoin was little changed at $17,772.42
• Ether fell 0.9% to $1,308.22

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.47%
• Germany’s 10-year yield advanced one basis point to 1.94%
• Britain’s 10-year yield advanced one basis point to 3.31%

Commodities

• West Texas Intermediate crude rose 2.7% to $77.42 a barrel
• Gold futures fell 0.3% to $1,819.90 an ounce

This story was produced with the assistance of Bloomberg Automation.

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