Stocks rose as traders sifted through comments from Federal Reserve speakers after Jerome Powell said officials “will proceed carefully” on whether to raise interest rates again, while signaling policy will remain tighter for longer.
(Bloomberg) — Stocks rose as traders sifted through comments from Federal Reserve speakers after Jerome Powell said officials “will proceed carefully” on whether to raise interest rates again, while signaling policy will remain tighter for longer.
The S&P 500 headed for its best week since July. The yield on 10-year Treasuries fluctuated near 4.2%. The dollar was little changed. Boeing Co. climbed after Bloomberg News reported it’s preparing to restart delivery of 737 Max jets to China for the first time in four years. Nvidia Corp. sank 3% after touching an all-time high earlier this week.
The Fed chief cautioned that the process of bringing inflation back to its target “still has a long way to go.” At the same time, Powell suggested the Fed could hold rates steady at its next meeting in September, as investors expect.
“We’ll be living number to number for a while here,” said David Russell at TradeStation. “He gave some hope to the dovish side by acknowledging that current policy is restrictive and it may work further over time. But he also threatened to drop the hammer again if the economy and job market run too hot.”
Fed Bank of Philadelphia President Patrick Harker signaled he favored holding rates at current levels to allow the effects of cumulative tightening to work through the system. His Cleveland counterpart Loretta Mester told CNBC that core inflation is still running too high and policymakers have to be “diligent” as they work to bring inflation on a steady path down to 2%. Fed Bank of Chicago head Austan Goolsbee said the Fed is part of the way down the road to a soft landing.
European Central Bank President Christine Lagarde will also speak Friday, her first major remarks since officials raised interest rates on July 27 but left future decisions dependent on fresh data. She will also speak in a Bloomberg Television interview after the speech.
Comments
- Neil Dutta at Renaissance Macro Research:
“I thought Powell has delivered a neutral speech. The Fed sees its monetary policy stance as restrictive and will take a more tempered approach to future meetings. Thus, I think it is quite likely that the Fed does not move in either September or November. If, and this is a big if, they deliver on the hike currently in the dots, it will be December.”
- Michael Feroli at JPMorgan:
“No alarms and no surprises. After these remarks we still think the Fed is on extended hold, though with a risk they hike next month if the data between now and Sept. 20 come in hot.”
- Ronald Temple at Lazard:
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“Powell’s speech today should give investors confidence that rate hikes are likely over, absent an unexpected resurgence of inflation. The commentary was largely in line with expectations eliciting yawns from a sleepy August Wall Street. While noting that it will take time before the Fed can be certain inflation and expectations thereof are safely anchored at 2% and suggesting that there are situations that could trigger additional rate hikes, Powell was also careful not to signal imminent additional tightening measures.”
- Jose Torres at Interactive Brokers:
“Powell sticks to his guns. Powell’s statements underscore that the Fed’s battle against inflation has continued to be longer and more aggressive than many investors anticipated. Investors who were hoping that goods deflation and moderating price increases for housing services would prompt the Fed to turn dovish had their expectations crushed.”
- Craig Erlam at Oanda:
“I don’t think we can be too surprised at what has been said. While another rate hike in the cycle is still far from certain – I’m still of the view they’re done – traders are increasingly accepting that they will likely stay there longer than they’ve expected at any point in the tightening cycle. That message was clear from Powell’s comments, as was his insistence that if necessary they would hike again. And in referencing the strength of the labor market and the economy, I suspect he currently believes another will be needed.”
- Steve Sosnick at Interactive Brokers:
“It’s what I expected – a reminder that since we’re above their inflation target, hikes remain on the table, and don’t expect cuts anytime soon. Not much new.”
- Chris Zaccarelli at Independent Advisor Alliance:
“As expected, the Fed chair preserved maximum flexibility by not saying whether the Fed was done raising rates or whether there was at least one more rate hike coming down the pike. We expect that if inflation continues on its current path, then the Fed will hold rates where they are and the economy will stay out of recession (at least for this year), the bull market will resume, and we will end the year higher from here.”
- Gary Pzegeo at CIBC Private Wealth US:
“No real surprises from Jerome Powell today. It is a very different environment than a year ago when Powell saw a much larger disconnect between the Fed’s expectations and the bond markets’ pricing. Powell didn’t add much in the way of new information, but he did reiterate that the Fed will ‘keep at it until the job is done’.”
“The bond market is not very convinced of another move, particularly at the September meeting. Powell said little to change market expectations in the very short-term. Beyond September, markets may have to adjust the rate outlook higher, particularly if the recent run of faster than expected growth continues to play out.”
- Ryan Detrick at Carson Group:
“Was he hawkish? Yes. But given the jump in yields lately, he wasn’t as hawkish as some had feared. Remember, last year he took out the bazooka and was way more hawkish than anyone expected, which saw heavy selling into October. This time he hit it more down the middle, with no major changes in future hikes a welcome sign.”
- Quincy Krosby at LPL Financial:
“Powell stands by his standard retort: inflation easing, but too soon to declare victory.”
The spike in the 10-year Treasury yields that has garnered much interest lately has not been violent enough to derail stocks, just as the move in two-year yields was also mild by historical standards, Ned Davis Research’s Ed Clissold said.
Yet, the longer-term picture is looking muddier, with equities now more expensive than cash for the first time since 2001 when comparing Treasury bill yields to the S&P 500’s earnings yield, as Ned Davis analysis shows. “As long as the stock market is posting double-digit gains, investors may not focus on relative valuations, but if cash continues to offer juicy yields, it could exacerbate the next equity bear market,” Clissold said.
The drop in US stocks on Thursday despite a bumper report from Nvidia Corp. shows the rally this year is “exhausted” and portends more declines to come, according to Morgan Stanley’s Michael Wilson.
“Markets top on good news and they bottom on bad news,” Wilson said in an interview on Bloomberg Radio. “I can’t think of any better news than what we got from that company,” he said, referring to Nvidia. The failed boost “is another negative technical signal that the rally is exhausted. And now we’re going to need a new story to get people excited and I don’t know what that story is.”
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.7% as of 2:23 p.m. New York time
- The Nasdaq 100 rose 0.7%
- The Dow Jones Industrial Average rose 0.8%
- The MSCI World index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was unchanged at $1.0810
- The British pound was little changed at $1.2599
- The Japanese yen fell 0.3% to 146.22 per dollar
Cryptocurrencies
- Bitcoin fell 0.2% to $25,954.12
- Ether fell 0.2% to $1,646.4
Bonds
- The yield on 10-year Treasuries declined one basis point to 4.23%
- Germany’s 10-year yield advanced five basis points to 2.56%
- Britain’s 10-year yield advanced two basis points to 4.44%
Commodities
- West Texas Intermediate crude rose 0.9% to $79.79 a barrel
- Gold futures fell 0.3% to $1,941.50 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Namitha Jagadeesh, Sagarika Jaisinghani, Emily Graffeo and Isabelle Lee.
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