© Reuters. FILE PHOTO: US Federal Reserve Chairman Jerome Powell addresses reporters after the Fed raised its target interest rate by a quarter of a percentage point, during a news conference at the building of the Federal Reserve in Washington, USA, on February 1, 2023. REUT
By Carolina Mandl and Johann M Cherian
(Reuters) – U.S. stocks rallied to a convincingly higher close on Tuesday, but trading was choppy as investors digested comments by Federal Reserve Chairman Jerome Powell about how long it might take for the central bank to control inflation.
Powell said 2023 should be a year of “significant declines in inflation.”
His comments renewed investor hopes for a less aggressive monetary policy that faltered after a strong US jobs report last Friday. “We didn’t expect it to be this strong,” Powell said at the Economic Club of Washington, referring to the January nonfarm payrolls report, but “it shows why we think this is going to be a long-term process.” .”
“Powell hopes they won’t cut rates any time soon, but that there’s a good way to go, that they’re doing what they need to do,” said Shawn Cruz, chief trading strategist at TD Ameritrade.
Wall Street’s major indexes fluctuated wildly during and after Powell’s comments, and analysts said the volatility was unlikely to dissipate anytime soon.
“Until we see weakness and inflation throughout the economy and around the world, it will be difficult to drive markets decisively,” said Carol Schleif, chief investment officer at BMO Family Office.
Tech-heavy Nasdaq rebounded in the form of news microsoft corporation (NASDAQ:), and also received a boost. Shares of the company rose 1.29% as it disclosed the integration of ChatGPT, an OpenAI chatbot, into its products.
Following Powell’s comments, Morgan Stanley (NYSE:) said it added 25 basis points to its forecast for the May policy meeting, but continued to expect the first 25 basis point rate cut in December 2023.
Last week, the Fed raised interest rates by 25 basis points, and markets are now pricing in a top rate above 5% after strong jobs data on Friday.
Shares of US-listed Baidu Inc (NASDAQ:) soared 12.18% as the Chinese search engine said it would wrap up testing of its “Ernie Bot” ChatGPT-style project in March.
Most sectors of the S&P 500 ended higher. The energy sector is the main winner as crude oil prices rose more than 3% on Powell’s comments. The technology and communication services sectors were also among the top gainers.
Among the top gainers in the index, Boeing (NYSE:) Inc rose 3.84% after the US planemaker confirmed it expects to cut some 2,000 white-collar jobs.
The Dow Jones Industrial Average rose 265.67 points, or 0.78%, to 34,156.69, the S&P 500 gained 52.92 points, or 1.29%, to 4,164, and 226.34 points, or a 1.9%, to 12,113.79.
Volume on US exchanges was 11.980 million shares, in line with the full session for the last 20 trading days.
On Monday, US stock indices were dragged down by sentiment that rates would stay high for longer. Still, all three major averages are in the black for 2023, with the Nasdaq adding more than 15%, led by a revival in battered mega-cap growth stocks.
So far, more than half of the companies in the S&P 500 have reported quarterly earnings, and 69.1% of them beat expectations, according to Refinitiv. Still, analysts expect fourth-quarter earnings to decline 3.1%.
DuPont (NYSE:) De Nemours Inc jumped 7.50% on higher-than-expected quarterly profit thanks to rising product prices.
Bed Bath & Beyond (NASDAQ:) plunged nearly 50% as the home goods retailer sought to raise $1 billion in a last-ditch effort to avoid bankruptcy. The company completed the share offering after the close of trading.
Later Tuesday, US President Joe Biden will deliver the annual State of the Union address to a joint session of Congress.
Advancing issuances outnumbered declining ones on the New York Stock Exchange by a ratio of 1.68 to 1; on Nasdaq, a 1.42-to-1 ratio favored advancers.
The S&P 500 posted 5 new 52-week highs and 2 new lows; the Nasdaq Composite posted 90 new highs and 31 new lows.
(This story has been corrected to change the title to Chief Investment Officer, instead of Deputy Chief Investment Officer, in paragraph 6)