Stocks get a lift from Fed chair’s comments

Wall Street rallied Tuesday after the Federal Reserve signaled last week’s strong jobs report won’t by itself change where interest rates are heading, as some investors had feared.

The Standard & Poor’s 500 rose 1.3% to close a shaky day during which stocks pinballed between losses and gains as Fed Chair Jerome H. Powell gave his first public comments since raising rates last week. The Dow Jones industrial average rose 0.8%; the Nasdaq composite jumped 1.9%.

High inflation and how high the Fed will take interest rates to combat it have been at the center of Wall Street’s wild movements for the last year. Powell said Tuesday that progress is being made, though a long battle remains.

That echoed similar comments he made last week after the Fed approved its smallest increase to interest rates since March. But that was before a jolting jobs report Friday showed U.S. employers added a third of a million more jobs than expected last month.

The show of strength raised concerns about upward pressure on inflation and worries the Fed may end up keeping rates higher for longer, as it’s been warning.

But Powell said Tuesday at the Economic Club of Washington that the market’s big moves since the jobs report have gotten it closer to being in sync with the Fed’s thinking. Not only did stocks fall, but Wall Street also raised its forecast for how high the Fed will take rates by the summer.

Investors also reduced bets that the Fed may cut rates later this year. Rate cuts can stimulate the economy and stock markets.

“We have a significant road ahead to get inflation down to 2%,” which is the Fed’s target, Powell said Tuesday. “There’s been an expectation that it will go away quickly and painlessly. I don’t think that’s at all guaranteed.”

Powell also said that if more jobs reports or inflation data come in way above expectations, the Fed may ultimately raise rates even higher than it’s been saying.

The Fed has said it envisions a couple of additional increases before holding steady through the end of the year.

Treasury yields have zoomed higher in recent days on expectations for a firmer Fed. They held relatively steady Tuesday.

The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, rose to 3.68% from 3.64% late Monday. The two-year yield, which moves more on expectations for the Fed, dipped to 4.49% from 4.47%. It remains near its highest level since November.

Despite all the market’s recent moves, stock prices are still up a healthy amount since the start of the year. The S&P 500 is up 8.5%. Much of that was the result of easing worries of a severe recession.

“If I had to take a camp today, it would be in the softlanding one, if only because of the strength of the labor market,” said Ross Mayfield, investment strategy analyst at Baird. He said he sees a “slowdown or maybe a soft recession, but that’s what I think a ‘soft landing’ means now” for the economy.

“The problem is that with the market rally to start the year, you’ve got that scenario priced in almost,” he said. “There are still risks to the downside.”

A relatively lackluster earnings reporting season is also rolling on.

Carrier Global dropped 3.8% despite matching analysts’ expectations for profits in the latest quarter. Analysts pointed to a deceleration in orders.

On the winning end was DuPont, which climbed 7.5% after reporting stronger profit for the latest quarter than analysts expected. Activision Blizzard gained 5.6% after the video game company reported stronger revenue and profit than expected for its latest quarter.

All told, the S&P 500 rose 52.92 points to 4,164.00, the Dow gained 265.67 points to close at 34,156.69 and the Nasdaq jumped 226.34 points to 12,113.79.