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The Dow Jones rose 0.2% after falling more than 1% soon after the open. The S&P 500 climbed 0.5%. The Nasdaq composite jumped 1%.
The Dow Jones turned higher Wednesday, with the S&P 500 and especially the Nasdaq composite leading the way. Federal Reserve chief Jerome Powell told Congress that policymakers will move aggressively to fight inflation, but said the U.S. economy is “well positioned” to handle rate hikes. Unlike equities, Treasury yields and crude oil prices fell significantly.
Risk appetite has improved as investors sought after safe-haven assets such as the US dollar and Treasury bonds. US stocks rose Wednesday after Federal Reserve Chairman Jerome Powell acknowledged, during a testimony hearing before the congress, the possibility of the US economy to enter into a recession while discussing the central bank’s efforts to address inflation.
The S&P 500 gained 0.6%, while the Dow Jones Industrial Average added 0.4%, or about 121 points. The tech-heavy Nasdaq Composite advanced 0.7%. All three indexes were down in early morning trading Wednesday before turning higher.
In his prepared remarks before the Senate Banking Committee, Powell reiterated that ongoing increases in the policy rate would be appropriate, but the pace of the changes will continue to depend on the incoming data and the evolving outlook for the economy
Wall Street’s main indexes cut losses and the Nasdaq turned positive on Wednesday after Federal Reserve Chair Jerome Powell said the U.S. central bank is “strongly committed” to bringing down inflation that is running at a 40-year high.
The comments, by Jerome Powell, came a week after the U.S. central bank raised interest rate by three-quarters of a percentage point, its largest increase since 1994. According to a Reuters poll, economists expect a similar move next month, followed by a half-percentage-point rise in September.
“At the Fed, we understand the hardship high inflation is causing,” Powell said in his remarks. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.”
But he said the U.S. can handle big rate hikes, minimizing recession risks. “The American economy is very strong and well positioned to handle tighter monetary policy.”
On Wednesday, Citigroup sees a 50-50 chance that the U.S. will sink into a recession. The most likely recession would be a mild “garden variety” downturn, but there are “hard landing” and “stagflation” risks.
The Fed raised rates by 75 basis points on June 15, the biggest hike in 28 years. After the Fed meeting announcement, Powell said policymakers could hike rates by 50 basis points or 75 in late July. Markets have almost entirely priced in another move of 75 basis points.
US crude oil prices sank nearly 6%, trading below $103 a barrel and pointing crude futures toward their first monthly decline since November. Oil markets are increasingly worried about a recession dampening oil demand. Meanwhile, President Joe Biden called on Congress to suspend the federal gasoline tax of 18.4 cents per gallon for three months.
Vertex Pharmaceuticals (VRTX) and Bristol-Myers Squibb (BMY) reclaimed their 50-day lines, while United Therapeutics (UTHR) is in a buy range. All three pharma stocks have relative strength lines at highs.
Meanwhile, Tesla (TSLA) and Google parent Alphabet (GOOGL) remain two megacaps that have yet to undercut their late May lows. That’s not market leadership, but it’s a nugget of strength.
UTHR stock is on SwingTrader. Google stock is on IBD Long-Term Leaders. Vertex and BMY stock are on the IBD 50 and IBD Big Cap 20.
