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Powell Remarks Hinting At Slower Rate Hikes Spark Rally On Wall Street

wallstreet oct01 30nov22 lt

Stocks turned in a lackluster performance in morning trading on Wednesday but moved sharply higher in reaction to highly anticipated remarks by Federal Reserve Chair Jerome Powell.

With the surge, the Dow reached a new seven-month closing high, while the Nasdaq and the S&P 500 reached their best closing levels in over two months.

The major averages saw further upside going into the close, ending the session at their best levels of the day. The Dow jumped 737.24 points or 2.2 percent to 34,589.77, the Nasdaq soared 484.22 points or 4.4 percent to 11,468.00 and the S&P 500 spiked 122.48 points or 3.1 percent to 4,080.11.

The rally on Wall Street came as Powell's remarks provided further evidence the central bank plans to slow its aggressive pace of interest rate hikes as soon as next month.

Powell noted during a speech at a hybrid Brookings Institution event that the full effects of the Fed's rapid rate increases have yet to be felt.

"Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down," Powell said in prepared remarks. "The time for moderating the pace of rate increases may come as soon as the December meeting."

However, the Fed chief argued the timing of a slowdown in the pace of rate hikes is less significant than how much further the central bank will need to raise rates and how long it will be necessary to hold policy at a restrictive level.

"It is likely that restoring price stability will require holding policy at a restrictive level for some time," Powell said. "History cautions strongly against prematurely loosening policy. We will stay the course until the job is done."

The Fed's next monetary policy meeting is scheduled for December 13-14, with CME Group's FedWatch Tool currently indicating a 77.0 percent chance of a 50 basis point rate hike and a 23.0 percent chance of a fifth straight 75 basis point rate hike.

Stocks had shown a lack of direction earlier in the day, as traders awaited Powell's remarks while digesting a mixed batch of U.S. economic data.

While payroll processor ADP released a report showing slower than expected private sector job growth in November, the Commerce Department released a separate report showing an unexpected upward revision to GDP growth in the third quarter.

Sector News

Semiconductor stocks moved sharply higher over the course of the session, resulting in a 5.9 percent spike by the Philadelphia Semiconductor Index. The surge lifted the index to a three-month closing high.

Substantial strength also emerged among networking stocks, with the NYSE Arca Networking Index soaring by 3.7 percent to its best closing level in almost a month.

Biotechnology stocks also turned in a strong performance on the day, driving the NYSE Arca Biotechnology Index up by 3.3 percent to a ten-month closing high.

Gold, retail, utilities and health care stocks also showed strong moves to the upside amid broad based buying interest.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday. China's Shanghai Composite Index inched up by 0.1 percent and Hong Kong's Hang Seng Index surged by 2.2 percent, although Japan's Nikkei 225 Index once again bucked the uptrend and dipped by 0.2 percent.

The major European markets also moved to the upside on the day. While the French CAC 40 Index jumped by 1.0 percent, the U.K.'s FTSE 100 Index advanced by 0.8 percent and the German DAX Index rose by 0.3 percent.

In the bond market, treasuries moved notably higher in reaction to Powell's speech. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 4.5 basis points to 3.703 percent after reaching a high 3.798 percent.

Looking Ahead

Trading on Thursday may be impacted by another batch of U.S. economic data, including reports on weekly jobless claims, personal income and spending and manufacturing activity.

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