Stocks rebounded as traded sifted through comments from a raft of 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 rebounded as traded sifted through comments from a raft of 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 rose 0.4% as of 12:28 p.m. New York time. The yield on 10-year Treasuries was little changed at 4.24%. The Bloomberg Dollar Spot Index rose 0.1%.
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.
“I thought Powell has delivered a neutral speech,” said Neil Dutta at Renaissance Macro Research. “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.”
Fed Bank of Philadelphia President Patrick Harker signaled he favored holding interest 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%.
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.
- 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.”
- Greg McBride at Bankrate:
Read more: Why Investors Are Wary of Exploding US Debt
“There were no revelations from Fed Chair Jerome Powell’s widely anticipated speech in Jackson Hole, just a reaffirming that the Fed is squarely focused on getting inflation down to 2% and they intend to see the job through.”
- Ross Mayfield at Baird:
“Fed Chair Jerome Powell’s speech said nothing especially new, but the speech seemed fairly hawkish in terms of how explicitly things were laid out – ‘the process still has a long way to go.’ The Fed is prepared to embody the ‘higher for longer’ mantra and keep rates restrictive until they are confident that inflation is re-anchored near their 2% target.”
- 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.”
- Callie Cox at eToro:
“Powell’s comments weren’t exactly new, but they struck a more serious tone. He made it clear that the job isn’t done yet. It’s worth staying vigilant in this environment while not completely giving up on risk. An aggressive Fed may not be enough to derail this bull market unless we see a recession. But in the meantime, it may be worth searching for undervalued names and investments instead of going all out on growth – especially if you’re looking for opportunity over the next few months.”
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.”
- Nordstrom Inc. dropped as analysts flagged weakening industry trends within the premium and luxury space as well as commentary on heightened credit card delinquency rates.
- Gap Inc. reported second-quarter comparable sales and revenue that missed the average analyst estimate, underscoring ongoing weakness at the retailer’s four brands.
- Marvell Technology Inc. fell after the semiconductor company gave a tepid profit outlook.
Some of the main moves in markets:
- The S&P 500 rose 0.4% as of 12:28 p.m. New York time
- The Nasdaq 100 rose 0.1%
- The Dow Jones Industrial Average rose 0.6%
- The MSCI World index was little changed
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.1% to $1.0796
- The British pound fell 0.1% to $1.2587
- The Japanese yen fell 0.3% to 146.31 per dollar
- Bitcoin was little changed at $25,999.49
- Ether was little changed at $1,648.15
- The yield on 10-year Treasuries was little changed at 4.24%
- Germany’s 10-year yield advanced five basis points to 2.56%
- Britain’s 10-year yield advanced two basis points to 4.44%
- West Texas Intermediate crude rose 1.1% to $79.91 a barrel
- Gold futures fell 0.5% to $1,937.80 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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