Stocks and Bonds Climb as Powell Sticks to Script: Markets Wrap

(Bloomberg) — Wall Street traders breathed a sigh of relief, with Jerome Powell once again signaling he expects the Federal Reserve to cut rates this year — even as a strong economy keeps officials on hold for now.

Stocks and bonds rose as investors took his remarks as a “no news is good news” development. Investors also kept a close eye on regional banks, with New York Community Bancorp erasing a 47% intraday tumble and closing 7.5% higher on news it was raising over $1 billion in equity to shore up investor confidence.

During his congressional testimony, Powell noted that the risk from commercial real estate is “manageable.” The Fed chief also said that the central bank is likely to significantly change its plan to require large lenders to hold more capital — a move that would mark a major win for industry giants.

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The S&P 500 reclaimed its 5,100 mark, with tech shares leading gains. Nvidia Corp. closed at a fresh record. Treasury 10-year yields fell five basis points to 4.1%. The dollar dropped. Bitcoin resumed its rally, topping $66,000.

To Michael Feroli at JPMorgan Chase & Co., Powell was pretty careful to avoid sending new signals on the direction of monetary policy — “which makes sense” considering the full set of economic data ahead of the next Fed meeting.

Powell’s remarks on Wednesday left intact expectations that the Fed will deliver three quarter-point rate cuts this year. While traders still see policy easing as early as June, their forecast is more aligned with the Fed’s than it was at the start of the year.

“While Powell didn’t commit to rate reductions in the near future, his positivity concerning the trajectory of inflation amidst confidence that the central bank’s current rate is likely at its peak is enough for market participants,” said Jose Torres at Interactive Brokers.

Separately, Fed Bank of Minneapolis President Neel Kashkari said he expects the central bank to cut interest rates two times — or potentially just once — in 2024, but emphasized he hasn’t finalized his forecasts for the upcoming meeting. 

Central bankers are now grappling with how soon and how far they should lower rates. Cut too early, and officials worry they could fuel a pick-up in activity that keeps inflation above 2% — the rate they see as appropriate for a healthy economy. Keep borrowing costs elevated for too long and they risk tipping the US into a recession.

The US economy has expanded at a modest pace since earlier in the year, while consumers showed more sensitivity to rising prices, the Fed said in its Beige Book survey of regional business contacts.

Traders also waded through the latest labor-market readings.

A report known as JOLTS showed US job openings remained elevated in January. Meantime, companies boosted hiring in February at a moderate pace, with private payrolls increasing by 140,000 — while trailing estimates.

“The Fed can afford to sit on higher rates until the labor market starts to crack,” said Jamie Cox at Harris Financial Group. “Maximum employment is the stronger of the two mandates for rate cuts, and there is no there, there to force cuts at this point. So, the Fed has a free pass to inflation fight, for now.”

Corporate Highlights:

• Boeing Co. officials have failed to fully cooperate with US investigators looking into how a panel blew off a 737 Max 9 in January, a Senate hearing was told Wednesday.
• CrowdStrike Holdings Inc., a cybersecurity company, jumped after giving an optimistic outlook.
• Exxon Mobil Corp. filed for arbitration to retain pre-emption rights in a giant Guyanese oil field, threatening Chevron Corp.’s attempt to acquire a stake via its pending $53 billion takeover of Hess Corp.
• Fifth Third Bancorp’s revenue is trending toward the top of its previous guidance for the first quarter even as net interest income is likely to come in at the bottom, Chief Financial Officer Bryan Preston said.
• Abercrombie & Fitch Co. reported fourth-quarter earnings that exceeded forecasts, underscoring the apparel retailer’s ability to maintain momentum despite uncertain economic conditions.
• Nordstrom Inc. is forecasting muted revenue and comparable sales growth this year as sluggish demand at its high-end namesake stores offsets an improving outlook at its off-price Rack stores.
• Foot Locker Inc. reported sales that surpassed Wall Street’s expectations, overcoming concerns of a pullback in consumer spending on sportswear.

Key Events This Week:

• China trade, forex reserves, Thursday
• European Central Bank’s rate decision, Thursday
• US initial jobless claims, trade, Thursday
• President Joe Biden delivers the State of the Union address, Thursday
• Fed Chair Jerome Powell testifies before the Senate Banking Committee, Thursday
• Cleveland Fed President Loretta Mester speaks, Thursday
• Eurozone GDP, Friday
• US nonfarm payrolls, unemployment, Friday
• New York Fed President John Williams speaks, Friday
• ECB Governing Council member Robert Holzmann speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.5% as of 4 p.m. New York time
• The Nasdaq 100 rose 0.7%
• The Dow Jones Industrial Average rose 0.2%
• The MSCI World index rose 0.6%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%
• The euro rose 0.4% to $1.0898
• The British pound rose 0.3% to $1.2740
• The Japanese yen rose 0.4% to 149.38 per dollar

Cryptocurrencies

• Bitcoin rose 5% to $66,481.26

Bonds

• The yield on 10-year Treasuries declined five basis points to 4.1%
• Germany’s 10-year yield was little changed at 2.32%
• Britain’s 10-year yield declined two basis points to 3.99%

Commodities

• West Texas Intermediate crude rose 1.2% to $79.08 a barrel
• Spot gold rose 0.9% to $2,146.34 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Isabelle Lee, Elizabeth Stanton and Felice Maranz.

©2024 Bloomberg L.P.