Market Snapshot: U.S. stocks rise in volatile trade as Powell hints at possibility of more rate hikes


U.S. stocks were up modestly Friday afternoon, in a choppy trading session after Federal Reserve Chairman Jerome Powell warned the central bank may need to raise interest rates even higher to temper a strong U.S. economy and quell inflation, while assuring investors that monetary policy would proceed cautiously.

How stock indexes are trading

  • The Dow Jones Industrial Average DJIA was up 153 points, or 0.5%, at 34,252.
  • The S&P 500 SPX gained almost 14 points, or 0.3%, to 4,390.
  • The Nasdaq Composite COMP advanced 34 points, or 0.3%, to 13,498.

For the week, the Dow was on pace to fall 0.7%, the S&P 500 was heading for a 0.5% gain and the Nasdaq was on track to rise 1.6%, FactSet data show, at last check.

What’s driving markets

Federal Reserve Chair Jerome’s Powell’s message to investors during Friday’s Jackson Hole speech was that still too high inflation may warrant more interest rate hikes as he keeps a careful eye on incoming economic data.

The Fed’s “staying restrictive” with its monetary policy, said Kevin Gordon, senior investment strategist at Charles Schwab, in a phone interview Friday after Powell’s speech. His remarks leaned “hawkish” in suggesting that interest rates could stay higher for longer as the central bank aims to bring inflation back down to its 2% target in a still tight labor market, said Gordon.

Traders are largely expecting the Fed will hold rates steady in September, but see a chance of another interest rate hike in November or December, according to the CME FedWatch Tool, at last check. Federal-funds futures were pointing to a 46.7% probability of a quarter point hike to 5.5% to 5.75% at the Fed’s November meeting, and a slightly lower chance of such a hike to that same range in December.

Meanwhile, stocks are continuing to adjust to bond-market volatility, said Gordon, pointing to the burst higher in Treasury yields in August.

On Friday afternoon, two-year Treasury yields BX:TMUBMUSD02Y were trading seven basis points higher at around 5.07%, while 10-year yields BX:TMUBMUSD10Y were little changed at around 4.23%, according to FactSet data, at last check. Bond yields move inversely to prices.

Investors may be expecting Powell to follow through with his promise to cool the economy, according to Joe Ferrara, investment strategist at Gateway Investment Advisers.

“He’s saying the job isn’t done yet,” Ferrara said during a phone interview with MarketWatch. “It seems that the economy is running a little too hot for him, so I think that is slightly more hawkish than dovish.”

Although inflationary pressures have eased, Powell noted that core price pressures remain well above the Fed’s 2% target. The increase in core inflation measured by the consumer-price index over the past year through July slowed to 4.7%.

Others contrasted Friday’s Jackson Hole speech with Powell’s remarks from last year, when he took the market by surprised and triggered a more than 3% drop in the S&P 500 index. Comparisons were also drawn to his comments at the Fed’s July meeting, along with the tone of minutes from that meeting released last week.

“Was he hawkish, yes. But given the jump in yields lately, he wasn’t as hawkish as some had feared, said Ryan Detrick, chief market strategist at Carson Group, in emailed commentary. “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.”

In July, the Fed raised its policy rate by a quarter percentage point to a target range of 5.25% to 5.5%, the highest in 22 years.

In U.S. economic data released Friday, a final reading on the University of Michigan’s U.S. consumer sentiment index ticked lower to 69.5 in late August, a sign that consumers’ outlook for the economy has softened.

See: Consumer sentiment dips at end of August on more worries about the economy

Companies in focus

Steven Goldstein contributed to this article

This article was originally published by Read the original article here.

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