Breaking: Stock Market’s Rollercoaster Ride After Fed Chair’s Speech

Rahul Don
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Breaking: Stock Market’s Roller Coaster Ride After Fed Chair’s Speech

The U.S. stock market closed higher on Friday after Jerome Powell, the Chair of the Federal Reserve, delivered remarks at the Jackson Hole symposium. Powell indicated that the central bank might need to further raise interest rates to rein in a robust U.S. economy and control inflation. At the same time, he reassured investors that any adjustments in monetary policy would be approached with caution.

Breaking: Stock Market's Rollercoaster Ride After Fed Chair's Speech

Here’s a breakdown of how the major stock indexes performed:

– The Dow Jones Industrial Average climbed by 247.48 points, or 0.7%, reaching a closing value of 34,346.90.
– The S&P 500 experienced a gain of 29.4 points, or 0.7%, concluding at 4,405.71.
– The Nasdaq Composite advanced by 126.67 points, or 0.9%, finishing at 13,590.65.

For the week, the Dow decreased by 0.4%, the S&P 500 saw an increase of 0.8%, and the Nasdaq climbed by 2.3%. This data, sourced from Dow Jones Market Data, reveals that the Dow faced back-to-back weekly losses, while the S&P 500 and the technology-centric Nasdaq Composite broke their three-week losing streak.

Key Market Drivers:

During his speech at Jackson Hole, Jerome Powell emphasized that persistent high inflation might necessitate additional interest rate hikes, underlining his vigilant monitoring of incoming economic indicators. Kevin Gordon, Senior Investment Strategist at Charles Schwab, noted that the Federal Reserve remains committed to maintaining a restrictive monetary policy. Powell’s comments leaned towards a “hawkish” stance, suggesting that interest rates could remain elevated for an extended period. This move is intended to bring inflation back down to the central bank’s 2% target, particularly in the context of a tightly constrained labor market.

Market participants are largely anticipating that the Federal Reserve will keep interest rates unchanged in September. However, there is speculation of a potential interest rate hike in either November or December, as indicated by the CME FedWatch Tool. Currently, federal-funds futures suggest a 49.9% likelihood of a quarter-point increase to a range of 5.5% to 5.75% during the November Fed meeting. The probability of a similar hike in December is slightly lower.

Bond-market volatility continues to impact the stock market’s adjustment. Notably, there was a notable increase in Treasury yields during August. Two-year Treasury yields rose by 3.8 basis points to 5.054%, while 10-year yields remained relatively stable at 4.239%, according to Dow Jones Market Data. It’s important to note that bond yields and prices move inversely to each other.

Investors may be interpreting Powell’s commitment to cooling the economy as a signal of ongoing tightening measures. Joe Ferrara, an Investment Strategist at Gateway Investment Advisers, noted that Powell’s stance reflects concerns about the economy running excessively hot. Despite some easing of inflationary pressures, Powell highlighted that core price pressures remain well above the Federal Reserve’s target of 2%. Core inflation, as measured by the consumer-price index, recorded a 4.7% increase over the past year through July.

Comparisons have been drawn between Powell’s recent Jackson Hole speech and his remarks from the previous year, which had surprised the market and caused a significant drop in the S&P 500 index. While Powell’s stance this year can be classified as “hawkish,” it was not as aggressive as some had feared. According to Ryan Detrick, Chief Market Strategist at Carson Group, Powell struck a balance this time, avoiding major shifts in future rate hikes and thereby providing a reassuring signal to the market.

In July, the Federal Reserve implemented a quarter-percentage-point increase in its policy rate, setting the target range at 5.25% to 5.5%, marking the highest level in over two decades.

In terms of economic data released on Friday, the final reading of the University of Michigan’s U.S. consumer sentiment index decreased slightly to 69.5 in late August. This decline suggests a softening of consumers’ economic outlook.

Steven Wieting, Chief Economist and Chief Investment Strategist at Citi Global Wealth, shared his perspective on the market. He expressed a preference for bonds over equities in the U.S. market, with an expectation of 1.8% GDP growth for the upcoming year. Wieting highlighted his caution regarding the concentration risk in the U.S. stock market, particularly stemming from the significant rally in mega-cap tech stocks this year, which has overshadowed other equities. He added that recent adjustments in his strategy have included a position in the equal-weight version of the S&P 500, driven by its favorable valuation compared to the capitalization-weighted index.

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