Stocks rise as Fed chair reassures investors

For the better part of a year, stock investors have shrugged off the pandemic. Rising death tolls, rampant infections and widespread economic devastation haven’t interrupted the market’s rise for long.

But lately, investors appeared increasingly unsettled by the prospect of what those outside Wall Street see as good news: a gathering consensus that strong economic growth is on the way.

Combined with climbing commodity prices and a sharp increase in yields on government bonds, the improving economic outlook had sent stocks down for five straight sessions, as investors began to worry that the Federal Reserve might cut back its support for the economy.

And on Tuesday, the S&P 500 opened down again, before a sharp turnaround snapped the streak. The reason for the rise: Jerome Powell, the Federal Reserve chair, reassured investors that the economy still had to make a lot more progress before the Fed would consider changing its policies.

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Powell told the Senate Banking Committee on Tuesday.

It was enough to reverse what would have been a sixth straight day of losses for the S&P 500, which edged up a tenth of a percent. The run of down days was the longest since last February, although the total loss was a modest 1.4%.

Powell soothed the nerves of pessimists who worried that a policy change could happen sooner rather than later, said Scott Clemons, chief investment strategist for private banking at Brown Brothers Harriman, an investment bank.

“Chairman Powell, in his testimony to the Senate Banking Committee today, seems more like the cool dad who is willing to let the party go on for a while before shutting down the bar,” Clemons said.

The emerging consensus that growth — and perhaps inflation — will be stronger than expected just a few weeks ago has been provoked by prices in key financial markets.

Recent economic data in the United States has also been stronger than expected, with updates on consumer confidence, retail sales and industrial production arriving better than expected over the past week — all as the national COVID-19 vaccination effort continues to gain traction.

On top of all that, President Joe Biden and Democratic leaders in Congress are pushing for a large-scale stimulus plan. Democrats are determined to move the measure forward without bipartisan support.