Last night, US Fed chairman Jay Powell didn’t panic. And Mr Market celebrated, turning a losing session into the best one-day gain in two years. The story below from our partners at the WSJ and the embedded video with highlights of Powell’s speech provide context.
From a South African perspective, it’s a welcome breather. The broad US stock market has experienced its worst start to the year since 1939. And when America sneezes, the rest of us get pneumonia. Perhaps not immediately, but ultimately, we always do.
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I hosted Piet Viljoen and Magnus Heystek yesterday in the first half yearly feedback on the R1m Local v Offshore Challenge – you can access the recording by clicking here or on the image above. For Piet’s SA-focused mandate, timing of the starting date was perfect. Not so for Magnus. But as both of them remind us, as it’s a five year project we’re only 100m into the 1000m horserace.
The market’s reaction to Powell last night may not be a watershed moment. But at the very least, it does signal that attacking shares of exponential companies is no longer one way traffic. Never bet against human ingenuity. Especially when the whole world is being disrupted.
More for you to read today:
- Bill Gates Questions Elon Musk’s Goals for Twitter, Approach to Misinformation. Platforms must curb spread of harmful falsehoods, Microsoft co-founder says, adding that he would speak out if Tesla chief makes Twitter worse (video below)
- Uber’s Revenue Doubles, but Stock Falls After Lyft Warns of Higher Driver Costs. Lyft’s talk of increasing incentives to lure drivers offsets Uber’s bullish outlook for rising ride demand and strong deliveries.
- As Coffins Come Home, Russians Confront Toll of Ukraine Invasion. Relatives of soldiers killed say they were defending both countries from fascists
- How to Use Silence in Business Meetings. It can be awkward. But research shows that pausing at just the right moment can be a powerful tool.
* A new addition to the Premium package will hit your inbox on Tuesday with the resuscitation of my Boardroom Talk newsletter to celebrate 40 years in journalism. Look forward to your feedback.
US Stocks Close Sharply Higher as Investors Digest Powell’s Comments
All three major indexes finish up more than 2% after being down earlier in the session
By Akane Otani and Caitlin Ostroff for The Wall Street Journal
U.S. stocks rallied, scoring their biggest one-day gain since 2020, after Federal Reserve Chairman Jerome Powell put to rest investors’ fears that the central bank might be considering bigger interest-rate increases in the coming months.
Major indexes were at first little changed Wednesday after the Fed announced it would raise interest rates by half a percentage point and begin to shrink its $9 trillion asset portfolio next month. Investors had widely expected both decisions heading into the conclusion of the central bank’s policy meeting.
What caught some by surprise was Mr. Powell saying the Fed wasn’t “actively considering” raising interest rates by 0.75 percentage point at a future meeting. Federal-funds futures, which traders use to track interest-rate expectations, had previously shown the market pricing in a 95% chance of the Fed making such a move in June.
Stocks soared after Mr. Powell’s remarks, with the Dow Jones Industrial Average finishing up 932.27 points, or 2.8%, to 34061.06, marking its biggest one-day gain since November 2020. The S&P 500 jumped 124.69 points, or 3%, to 4300.17 for its best day since May 2020, while the Nasdaq Composite added 401.10 points, or 3.2%, to 12964.86.
All three indexes had been down earlier in the day.
“There’s a sense of relief,” said Christopher Smart, chief global strategist and head of the Barings Investment Institute.
With stocks and bonds on shaky footing as of late, many investors had been worried that the pace at which the Fed tightens monetary policy would trip up markets. Others have been grappling with fears that the central bank, which is raising rates swiftly to try to tamp down inflation, may inadvertently tip the economy into recession.
The Fed’s messaging, however, helped put investor anxiety at ease, according to Mr. Smart.
“There’s a feeling they’re heading into the right direction,” he said. The central bank, he said, has shown it is taking inflation seriously, but not giving the impression that it will surprise investors with the size of subsequent rate increases.
Stocks rose across the board, with all 11 sectors of the S&P 500 finishing higher.
Exxon Mobil and Chevron rose more than 3% apiece, boosted by a rally in oil prices.
Meanwhile, technology and consumer-discretionary shares, which had been among the market’s biggest decliners earlier Wednesday, flew higher. The groups had taken a hit earlier as investors facing higher interest rates shied away from companies with higher valuations. It staged a rebound alongside bond prices, though, after Mr. Powell’s comments.
Alphabet rose 3.8%, and Facebook parent Meta Platforms rose 5.4%.
Corporate earnings also spurred volatility in the market Wednesday.
Airbnb shares rose $11.18, or 7.7%, to $156.18 after the company said it expects to post its first full-year net profit this year. Starbucks added $7.31, or 9.8%, to $81.64 after the coffee chain said profit and sales grew in the most recent quarter.
As stocks climbed, Treasury prices rose, too.
The bond market had been hit by its worst rout in decades as investors grappled with accelerating inflation and the prospect of rapid interest-rate increases by the Fed. The swift rise in bond yields added to the turmoil across the stock market this year.
Yet Mr. Powell’s comments appeared to ease the selling pressure on Treasurys on Wednesday. The yield on the benchmark 10-year Treasury note settled at 2.914%, compared with 2.957% Tuesday. Bond yields fall as prices rise.
The yield on the two-year Treasury note, which tends to be especially sensitive to changes to the outlook for monetary policy, also fell. It ended at 2.614%, down from 2.768% Tuesday.
Earlier Wednesday, other officials expressed confidence in the economic picture. The U.S. economy remains strong despite the fact that it shrank in the first quarter of this year, Treasury Secretary Janet Yellen said at The Wall Street Journal’s CEO Council Summit in London.
Overseas, stocks were mostly lower. The pan-continental Stoxx Europe 600 lost 1.1%. Hong Kong’s Hang Seng also fell 1.1%, and South Korea’s Kospi edged down 0.1%. Markets in mainland China and Japan were closed for a holiday.
In commodities markets, oil prices rose after the European Union proposed banning imports of Russian crude within six months and banning imports of refined oil products from Russia by the end of the year. U.S. crude oil rose 5.3% to $107.81 a barrel, posting its biggest one-day gain since mid-April.
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