(Bloomberg) — Stocks rallied and Treasury yields fell with the dollar as Jerome Powell said the Federal Reserve will slow the pace of rate increases at one point, while adding that officials would refrain from offering “clear guidance” on the magnitude of their next move.
About 85% of the S&P 500 companies rose, while the Nasdaq 100 soared over 4%, the most since November 2020. Two-year US yields tumbled as much as 10 basis points. Expectations for the pace of Fed hikes eased — with swap markets showing 58 basis points of tightening priced in for September.
The lack of forward guidance on rates was seen as positive by several traders, with officials trying to boost their credibility as they fight the hottest inflation in four decades. However, Wednesday’s market reaction was met with skepticism. The upside for markets is “very much capped” and the Fed needs tighter financial conditions to achieve slack in the labor market and bring inflation down, according to former New York Fed President Bill Dudley.
“It seems traders aren’t thinking another large move will be justified in September,” said Ed Moya, senior market analyst at Oanda. “A clear greenlight to buy up risky assets won’t happen until we see evidence inflation is coming down.”
For Bloomberg Economics’ Anna Wong, the July Fed decision signaled the central bank is nowhere close to pausing rate hikes. “Market expectations of a Fed put are premature. Looser financial conditions could end up making the Fed’s task of reining in inflation more challenging,” she added.
The Fed’s boss rejected speculation the US is in recession and said the central bank is moving “expeditiously” when it comes to dealing with inflation. Powell also noted that another unusually large boost in rates would depend on data after officials hiked by 75 basis points Wednesday, taking the cumulative June-July increase to 150 basis points, the steepest since the early 1980s.
Fresh economic data reduced the odds the US will report two straight quarters of a contracting economy and avert what is commonly regarded as a recession. Economists at Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. boosted their estimates for second-quarter gross domestic product after government reports showed firmer durable-goods shipments, a narrower trade deficit and gains in inventories last month.
Earnings:
- Meta Platforms Inc., parent company of Facebook and Instagram, reported its first ever quarterly sales decline, as economic turmoil caused advertisers to shrink budgets.
- Qualcomm Inc., the biggest maker of chips that run smartphones, gave a lackluster forecast for the current period, fueling concern that weaker consumer spending will hurt demand for mobile devices.
- Ford Motor Co., preparing to slash thousands of staffers to help fund its electric-vehicle future, reported second-quarter earnings that beat Wall Street estimates.
- Best Buy Co. cut its profit forecast, saying high inflation was hammering demand for consumer electronics.
Here are some key events to watch this week:
- Apple, Amazon earnings, Thursday
- US GDP, Thursday
- Euro-area CPI, Friday
- US PCE deflator, personal income, University of Michigan consumer sentiment, Friday
Musk, Tesla and Twitter are this week’s theme of the MLIV Pulse survey. Also share your views on the S&P 500’s biggest stocks. Click here to get involved anonymously.
Some of the main moves in markets:
Stocks
- The S&P 500 rose 2.6% as of 4 p.m. New York time
- The Nasdaq 100 rose 4.3%
- The Dow Jones Industrial Average rose 1.4%
- The MSCI World index rose 1.9%
Currencies
- The Bloomberg Dollar Spot Index fell 0.6%
- The euro rose 0.9% to $1.0206
- The British pound rose 1.1% to $1.2165
- The Japanese yen rose 0.3% to 136.52 per dollar
Bonds
- The yield on 10-year Treasuries declined two basis points to 2.79%
- Germany’s 10-year yield advanced two basis points to 0.95%
- Britain’s 10-year yield advanced four basis points to 1.96%
Commodities
- West Texas Intermediate crude rose 3.3% to $98.16 a barrel
- Gold futures rose 0.9% to $1,751.10 an ounce
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