U.S. Stocks Rise on Powell’s Dovish Taper Tone: Markets Wrap
(Bloomberg) -- U.S. equities gained to another record high as investors took assurance from comments by Jerome Powell that the withdrawal of stimulus would be gradual.
The S&P 500 and Nasdaq 100 rose after the Federal Reserve chairman’s much-anticipated Jackson Hole address, where he reinforced the message that it would be appropriate to begin tapering bond purchases by the end of the year. Treasury yields and the dollar fell. Gold gained.
Powell said the economy has now met the test of “substantial further progress” toward the Fed’s inflation objective while the labor market has also made “clear progress.” The remarks come as the latest reading of a closely watched measure of inflation remained elevated, highlighting the case for starting policy normalization despite the threat of the delta virus variant on the economic recovery.
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“Investors are breathing a sigh of relief as Powell suggests a kinder, gentler Fed tightening,” said Mike Bailey, director of research at FBB Capital Partners. “Judging by the equity move, my sense is mainstream investors expected a harder line from Powell about tapering starting in the fall and rate hikes locked in for late 2022 or early 2023.”
During the speech, Powell also drew a line between asset purchases and interest rates, saying the Fed wouldn’t be in a hurry to begin increasing rates after it begins tapering its $120-billion-a-month bond-buying program.
“I would fully expect that they will formally start slowly cutting asset purchases in October,” said Jeffery Elswick, director of fixed income at Frost Investment Advisors, targeting a September announcement. “But as long as they continue to be ultra dovish on future rate hikes, I don’t think it will create a huge market reaction-- at least initially.”
The next risk factors will likely come from economic reports, given the market’s experience with communicating quantitative easing, Kevin Caron, senior portfolio manager at Washington Crossing Advisors, said.
“While a policy misstep could happen, while a communication misstep could happen, it’s really more in the economic data itself where we would look for risk,” he said.
The Stoxx Europe 600 index gained, on track for the seventh straight month of gains, the longest streak in eight years. Stocks climbed in China, where the central bank signaled targeted steps to cushion the economy. West Texas Intermediate crude had its best week since June 2020. Bitcoin rose above $48,000.
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Some of the main moves in markets:
- The S&P 500 rose 0.9% as of 4 p.m. New York time
- The Nasdaq 100 rose 1%
- The Dow Jones Industrial Average rose 0.7%
- The MSCI World index rose 0.8%
- The Bloomberg Dollar Spot Index fell 0.5%
- The euro rose 0.4% to $1.1796
- The British pound rose 0.5% to $1.3763
- The Japanese yen rose 0.2% to 109.83 per dollar
- The yield on 10-year Treasuries declined five basis points to 1.30%
- Germany’s 10-year yield declined two basis points to -0.42%
- Britain’s 10-year yield declined two basis points to 0.58%
- West Texas Intermediate crude rose 2% to $68.74 a barrel
- Gold futures rose 1.5% to $1,821.30 an ounce
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