Markets rally after Fed reassurances on rate hike

Wall Street rallied Tuesday after Federal Reserve Chair Jerome Powell signaled that last week’s stunning January jobs report won’t alone change where interest rates are heading, as some investors had feared.

The S& P 500 posted a 1.3% gain after a shaky day when stocks pinballed between losses and gains. The Dow Jones Industrial Average rose 0.8%, while the Nasdaq composite jumped 1.9%.

High inflation and how high the Fed will take interest rates to combat inflation have been at the center of Wall Street’s wild movements for the past year. Powell said Tuesday that progress is being made on inflation, 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 the jolting jobs report showed that U.S. employers added a third of a million more jobs in January than expected.

The show of strength in the labor market raised concerns about upward pressure on inflation and worries the Fed may end up keeping rates higher for longer, as officials have been warning. Higher rates can drive down inflation, but also hurt the economy and investment prices.

Treasury yields have zoomed higher recently on expectations for a firmer Fed but 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 of the Fed, rose to 4.49% from 4.47% and is 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 because of easing worries the economy may fall into a severe recession, a scenario described in markets as a “hard landing.”

“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. Mayfield 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 on Wall Street is also rolling on.

Carrier Global Corp. dropped 3.8% despite matching analysts’ expectations for profits in the latest quarter. The company also gave a forecast for 2023 revenue that was slightly above Wall Street’s expectations.

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

A 4.2% move higher for Microsoft Corp. also helped lift the market. The softwaremaker said it’s now using ChatGPT-like technology in its Bing search engine.

Overall, the S&P 500 rose 52.92 points to 4,164.00, the Dow gained 265.67 points to 34,156.69 and the Nasdaq rose 226.34 points to 12,113.79.

Overseas, Sydney’s S&PASX 200 lost 0.5% after the Reserve Bank of Australia raised its benchmark rate by a quarter-point to 3.35%. The bank said more increases are planned to lower inflation at a 33-year high of 7.8%.

In Japan, the Nikkei 225 slipped less than 0.1% after the Japanese government reported that wages rose 4.8% in December compared with a year earlier. The gain neared a three-decade high as workers press for higher pay to keep pace with inflation.