U.S. Stocks Rally After Fed Chair Jerome Powell's Comments
U.S. stocks rallied to a higher close on Tuesday, with investors digesting comments from Federal Reserve Chair Jerome Powell about how long the central bank may need to tame inflation. Powell said 2023 should be a year of "significant declines in inflation," which renewed investor hopes for less aggressive monetary policy that wavered after a strong U.S. jobs report last Friday. His comments caused Wall Street's main indexes to fluctuate wildly, and analysts said volatility is unlikely to dissipate soon.
The tech-heavy Nasdaq rallied on news from Microsoft Corp, and the S&P 500 also got a boost. Morgan Stanley said it added 25 basis point to its forecast for the May policy meeting, but continued to expect the first 25 basis point rate cut for December, 2023. Last week, the Fed raised interest rates by 25 basis points, with markets now pricing in a peak rate above 5% after Friday's strong jobs data.
U.S.-listed shares of Baidu Inc soared 12.18% as the Chinese search engine said it would conclude testing of its ChatGPT-style project "Ernie Bot" in March. Most sectors on the S&P 500 ended higher, with the energy sector the top gainer as crude prices surged more than 3%. The technology and communication services sectors were also among top gainers.
Overall, the sentiment is positive as investors are encouraged by Powell's comments and the strong performance of the stock market. The Dow Jones Industrial Average rose 265.67 points, or 0.78%, to 34,156.69, the S&P 500 gained 52.92 points, or 1.29%, to 4,164 and the Nasdaq Composite added 226.34 points, or 1.9%, to 12,113.79. Volume on U.S. exchanges was 11.98 billion shares, in line with the full session over the last 20 trading days. So far, more than half of the companies on the S&P 500 have reported quarterly earnings, with 69.1% of them beating expectations. The sentiment is positive as investors are encouraged by Powell's comments and the strong performance of the stock market.
Powell Reiterates Need for Further Rate Hikes
Federal Reserve Chairman Jerome Powell reiterated the need for further rate hikes on Tuesday, citing the strong labor market as a reason for the need to bring inflation down to the central bank's target. He noted that the January jobs report was stronger than expected, and that it will take a significant period of time to bring inflation down to the desired level. Powell also stated that it was good that inflation was starting to come down without sacrificing the strength of the labor market.
Analysts have responded to Powell's remarks by noting that he is not being overly hawkish or dovish, but rather is trying to give himself the option to either pause or hike in the last few meetings. Some have interpreted the remarks as hawkish enough to price in more hikes, with Morgan Stanley adding a 25bp to the May FOMC meeting, bringing the peak rate expectation to 5.00% to 5.25%. The odds of a May rate hike have also jumped to 69% from 38% last week.
Overall, the sentiment of Powell's remarks is positive, as he is reiterating the need for further rate hikes in order to bring inflation down to the central bank's target. This is seen as a positive sign that the Fed is taking the necessary steps to ensure the economy remains stable.
Biden Expected to Call for 400% Increase in Buyback Tax
President Biden is expected to call for a 400% hike in the tax on stock buybacks during his State of the Union address tonight. The current 1% rate would be increased to 4%. While the announcement is expected to make waves, Cowen analysts don't expect House Republicans to approve a higher buyback tax, but they acknowledge that the probability is not zero.
The news is a high impact risk for banks, which are active users of stock repurchases as a way to return capital to shareholders. The Federal Reserve has pushed banks to favor stock buybacks over dividend increases since the Financial Crisis, as evidence showed banks were quick to cut buybacks but slow to slash dividends. Bank regulators are expected to privately object to a higher buyback tax, as it would encourage banks to raise dividends rather than repurchase shares.
Overall, the sentiment of this news is negative, as it could have a significant impact on banks and their stock repurchases. While the probability of House Republicans approving a higher buyback tax is not zero, it is unlikely, and the news is still a cause for concern.
Powell Reiterates Need for Rate Hikes, Stocks Surge
On Tuesday, Federal Reserve Chairman Jerome Powell reiterated the need for more rate hikes in order to bring down inflation to the Fed's 2% target. The S&P 500, Dow Jones Industrial Average, and Nasdaq all jumped in response to Powell's remarks, with big tech companies such as Microsoft Corporation (MSFT) and Alphabet Inc (GOOGL) leading the way. Energy stocks also rose, with Valero Energy Corporation (VLO), Marathon Petroleum (MPC), and Occidental Petroleum Corporation (OXY) being the biggest gainers. Chegg Inc (CHGG) and Pinterest Inc (PINS) both fell after reporting guidance that missed Wall Street expectations, while CVS Health (CVS) is reportedly closing in on a deal to buy the primary-care provider Oak Street Health (OSH) for $10.5 billion. Overall, the sentiment was positive, with investors betting on stocks driven by Powell's reiteration of the need for rate hikes.
U.S. Stocks Fall Ahead of Fed Chair Jerome Powell's Appearance
U.S. stocks were falling ahead of an appearance later today by Federal Reserve Chair Jerome Powell as investors try to gauge the central bank’s next steps. At 10:29 ET (15:29 GMT), the Dow Jones Industrial Average was down 111 points or 0.3% while the S&P 500 was down 0.2% and the NASDAQ Composite was up 0.1%. Last week’s strong jobs report for January gave investors reason to believe the Fed will continue raising rates to tame inflation, while some investors had been looking for signs when the Fed might pause its rate increases or even reverse course. The prospect of the Fed nearing an end to its tightening has lit a fire under growth stocks this year, with the tech-heavy Nasdaq up 13% so far this year despite slowing growth in the sector. Bed Bath & Beyond Inc (NASDAQ:BBBY) shares fell 43% on Tuesday after the struggling home goods retailer announced plans to sell $1 billion in stock to raise cash, while Royal Caribbean Cruises Ltd (NYSE:RCL) shares jumped 5.7% after it reported that bookings have exceeded pre-pandemic levels as its fourth quarter loss was smaller than expected. Oil rose, with Crude Oil WTI Futures up 1.7% to $75.41 a barrel and Brent Oil Futures up 1.3% to $82.02 a barrel, while Gold Futures were up 0.2% to $1,882.
Overall, the sentiment of this paragraph is neutral. The U.S. stock market is falling ahead of Federal Reserve Chair Jerome Powell's appearance, as investors try to understand the Fed's next steps. The strong jobs report for January has given investors reason to believe the Fed will continue raising rates to tame inflation, while some investors are looking for signs when the Fed might pause its rate increases or even reverse course. Bed Bath & Beyond Inc (NASDAQ:BBBY) shares have fallen 43%, while Royal Caribbean Cruises Ltd (NYSE:RCL) shares have jumped 5.7%. Oil and gold prices have also risen.
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