Wall Street ended the trading day on a positive note, as investors found their footing after Federal Reserve Chairman Jerome Powell said the central bank was “ready to raise interest rates further” at the annual Jackson Hole Economic Symposium in Wyoming.
Investors digested Powell’s comments in stalls, and at one point all the major averages pulled into the red. But the market settled for a balanced reading of the speech. While acknowledging that inflation has come down from its peak, the Fed chief reiterated that prices remain “very high”, leaving the door open for the central bank to continue tightening monetary policy. In what some analysts have dubbed the Rorschach test, Powell’s comments inspired hawkish and dovish predictions for what comes next. Wall Street appears to have taken a somewhat optimistic middle path.
The S&P 500 (^GSPC) rose 0.7%, while the Dow Jones Industrial Average (^DJI) rose 0.7%, or more than 200 points. The Nasdaq Composite Index (^IXIC) rose just under 1% as major averages won the day after Powell delivered a cautious message about the fight to bring inflation back to its 2% target.
The turnaround on Wall Street follows Thursday’s slump when stocks closed lower across the board as the Nasdaq fell nearly 2%, giving up gains from an early rally spurred by a strong Nvidia (NVDA) earnings report.
Powell’s comments reinforced earlier comments by Boston Fed President Susan Collins — who spoke to Yahoo Finance’s Jennifer Schonberger in an interview from Jackson Hole — suggesting higher interest rates may be needed to tame inflation.
Last year, stocks sold off sharply during Powell’s speech in Jackson Hole, when he said the Fed would keep raising interest rates “until the job is done”. Since that speech, rates have risen by an additional 300 basis points, with the federal funds rate now at its highest level since 2001.
With Powell signaling the possibility of further rate hikes, the bond market sent yields higher, with the yield on the 2-year Treasury note rising to 5.069%.
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