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U.S. Stocks Fluctuate As Traders Digest Powell Testimony

wallstreet nov01 22jun22 lt

Stocks recovered from an initial move to the downside on Wednesday but have seen some volatility over the course of the trading session since then. The major averages have spent the day bouncing back and forth across the unchanged line.

Currently, the major averages are all in positive territory. The Dow is up 130.30 points or 0.4 percent at 30,660.55, the Nasdaq is up 72.15 points or 0.7 percent at 11,141.45 and the S&P 500 is up 19.38 points or 0.5 percent at 3,784.17.

The early rebound on Wall Street came as traders reacted positively to Federal Reserve Chair Jerome Powell's testimony before the Senate Banking Committee.

In prepared remarks, Powell indicated the Fed plans to continue moving expeditiously to combat inflation but argued the U.S. economy is strong enough to handle tighter monetary policy.

However, Powell later acknowledged that achieving a "soft landing" will be "very challenging" due in part to factors outside of the Fed's control and noted a recession is "certainly a possibility."

"It's not our intended outcome at all, but it's certainly a possibility, and frankly the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2% inflation and still a strong labor market," Powell said.

Powell said the pace of future interest rate hikes will be dependent on incoming data and the evolving outlook for the economy and suggested the Fed will need to see "compelling evidence" that inflation is slowing before it begins to scale back its monetary policy tightening plans.

"We will make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as possible," Powell said. "Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored."

The Fed Chief said the central bank will still strive to "avoid adding uncertainty in what is already an extraordinarily challenging and uncertain time."

"The opening statement from Fed Chair Jerome Powell ahead of his Semi-annual testimony to the Senate Banking Committee this morning added little to what he said in last week's post-FOMC press conference," said Michael Pearce, Senior US Economist at Capital Economics.

He added, "But his continued emphasis on the need for 'compelling' evidence that inflation is falling suggests officials will repeat last week's larger 75bp hike at the next FOMC meeting in July."

Sector News

Interest rate-sensitive commercial real estate stocks have moved sharply higher on the day, resulting in a 2.1 percent spike by the Dow Jones U.S. Real Estate Index.

Pharmaceutical and healthcare stocks are also seeing considerable strength, with the NYSE Arca Pharmaceutical Index and the Dow Jones U.S. Health Care Index jumping by 2 percent and 1.9 percent, respectively.

Biotechnology, airline and telecom stocks have also shown notable moves to the upside, while energy stocks continue to see substantial weakness amid a steep drop by the price of crude oil.

With crude for August delivery plunging $3.83 to $105.69 a barrel, the Philadelphia Oil Service Index is down by 4.8 percent and the NYSE Arca Oil Index is down by 3.8 percent.

Steel stocks have also moved sharply lower over the course of the session, dragging the NYSE Arca Steel Index down by 3.3 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan's Nikkei 225 Index fell by 0.4 percent, while China's Shanghai Composite Index tumbled by 1.2 percent.

The major European markets also moved to the downside on the day. While the German DAX Index slumped by 1.1 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index slid by 0.9 percent and 0.8 percent, respectively.

In the bond market, treasuries have moved sharply higher, more than offsetting the pullback seen on Tuesday. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 15.8 basis points at 3.149 percent.

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