Wall Street rebounds after Fed rate assurance | Technology

By STAN CHOE – AP Business Writer

NEW YORK (AP) — Wall Street rallied on Wednesday after the Federal Reserve’s biggest interest rate hike since 1994, and its subsequent assurance that such mega-hikes would not be common.

The S&P 500 climbed 54.51, or 1.5%, to 3,789.99 after going through roller coaster trading immediately after Fed’s latest move to fight inflation.

In equally chaotic trading, Treasury yields fell in the bond market after Chairman Jerome Powell appeared to allay market fears of an overly aggressive Fed by hinting that more modest rate hikes could come later this year. year.

The Dow Jones Industrial Average oscillated between a gain of 647 points and a loss of nearly 180 before ending with a gain of 303.70. It closed at 30,668.53, up 1%. The Nasdaq composite jumped 270.81, or 2.5%, to 11,099.15.

The market turmoil was a sharp reversal from the global rout that dominated much of this year, which forced the S&P 500 into a bear market earlier this week. The fear has been that high inflation will cause the Fed and other central banks to tighten the brakes on the economy too tightly and create a recession. Wednesday’s gain was the first for the S&P 500 in six days.

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Some analysts have warned that the recovery could be short-lived given the depth and breadth of inflation in the economy and the troubling uncertainty of the future path.

“Chairman Powell has painted as rosy a picture as possible, and to get to this picture that he’s painting, this path, a lot has to go right,” said Yung-Yu Ma, chief investment strategist. at BMO Wealth Management. “It’s a tough road, and he recognized it.”

The Fed on Wednesday raised its main short-term interest rate by three-quarters of a percentage point, triple the usual move. Powell said the Fed may consider another such large hike at its next meeting in July, but he also said such a hike was “unusually large” and shouldn’t be expected. it is common.

The Fed is “not trying to cause a recession now, let’s be clear about that,” Powell said. He said Wednesday’s sharp increase was about accelerating the Fed’s move to return interest rates to normal, calling it an “initial load.”

“It sends a very clear signal to the market, to American consumers, that the Fed takes this seriously and is doing whatever it takes to reduce inflation and maintain price stability,” said Quincy Krosby, chief equity strategist. at LPL Financial.

All manner of investments, from bonds to bitcoin, have fallen this year as high inflation forces central banks to quickly remove support buoyed under markets at the start of the pandemic.

Even if central banks pull off the tricky trick of slowing the economy just enough to stamp out inflation, without a recession, higher interest rates drive investment prices down regardless. The hardest hit investments were the investments that rose the most in the era of easy money with ultra-low interest rates, including high-growth tech stocks and cryptocurrencies.

Treasury yields this week hit their highest levels in more than a decade on expectations of a more aggressive Fed, though they eased on Wednesday following Powell’s comments. A disappointing report showing that US retailer sales unexpectedly collapsed in May from April contributed.

The economy is still largely resilient amid a booming labor market, but it has recently shown signs of distress.

The two-year Treasury yield fell to 3.21% from 3.45% on Tuesday night, with the biggest move coming after Powell said rate hikes of 0.75 percentage points would not be common. . The 10-year Treasury yield fell to 3.28% from 3.48%.

“The bond market is currently driving the broader market and it will continue to do so,” said Jay Hatfield, CEO of Infrastructure Capital Advisors.

Cryptocurrency prices continued to fall, and bitcoin fell to $20,087.90, nearly 71% below its all-time high of $68,990.90 set late last year. It was down almost 1% at $21,770 in afternoon trading, according to CoinDesk.

Powell said on Wednesday the Fed was moving “quickly” to bring rates closer to normal levels after last week’s stunning report that showed consumer inflation unexpectedly accelerated last month. It dashed hopes on Wall Street that inflation may have already peaked.

More bad news came with a consumer sentiment report showing that household expectations for future inflation were on the rise, which could trigger a vicious circle that would make it worse.

The war in ukraine helped send oil price booming because the region is a major energy producer. COVID infections in China, meanwhile, have shut down factories and disrupted supply chains. All of this has helped send the S&P 500 down more than 20% from its all-time high in early January, putting Wall Street in what investors are calling a crisis. bear market.

Many of these concerns are still present, which will likely keep markets volatile.

“Nothing is gone, nothing seems to be significantly closer to endgame,” said BMO Wealth Management’s Ma. “It always seems like everything is very uncertain at best.”

However, inventories also rose in Europe and parts of Asia on Wednesday.

The German DAX gained 1.4% after the The European Central Bank has called an unscheduled meeting to address fears that rising interest rates could cause turmoil in the continent’s bond market. The central bank did not give a detailed plan, but said it would act against “fragmentation” if necessary, as bond yields for some European countries are rising much more than others.

Shares in Shanghai gained 0.5% after government data showed Chinese factory activity rebounded in May as anti-virus controls that shut down businesses in Shanghai and other industrial hubs eased.

AP Business Writers Damian J. Troise and Joe McDonald contributed.

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