Stocks rallied on Wednesday after Federal Reserve Chair Jerome Powell largely ruled out that the central bank’s next move could be a hike, easing investor worries that it was losing control of sticky inflation.
The Dow Jones Industrial Average jumped 500 points, or 1.3%, with a large part of the gains coming in afternoon trading and on the heels of the Fed’s latest interest rate decision. The S&P 500 added 1%, while the Nasdaq Composite gained 1.4%.
The central bank opted to hold rates steady, citing a “lack of further progress” in bringing inflation back down toward its 2% goal. However, stock prices rallied as Powell ruled out the likelihood of a hike in a press conference following the decision.
“I think it’s unlikely that the next policy rate move will be a hike,” he said. “I’d say it’s unlikely.”
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Investors also reacted positively to the Fed saying it would tap the brakes on one way it tightens conditions for financial markets. Starting in June, the central bank said it will slow the pace at which it allows maturing bond proceeds to roll off its balance sheet without reinvesting them. This is a process known as quantitative tightening.
“The fact that inflation remains elevated means we’re not going to see rate cuts very soon,” said Sonu Varghese, global macro strategist at Carson Group. “At the same time, they are going to slow the pace at which they shrink their balance sheet (their massive bond portfolio), which will likely put less upward pressure on bond yields.”
The 10-year Treasury yield dropped below 4.6% following Powell’s comments, alleviating some investor fears that it may jump back above 5% this year, and restrict the economy. Major technology stocks sensitive to the level of rates and risk appetite led the afternoon gains, with Microsoft and Alphabet gaining more than 2%. Amazon advanced 5% following better-than-expected earnings and revenue in the first quarter, while Meta Platforms jumped 4%.
Stocks tied to artificial intelligence struggled during Wednesday’s session, following disappointing reports from some top AI contenders. Advanced Micro Devices tumbled 7% after issuing an in-line current-quarter revenue forecast, while Super Micro Computer slid 11% on light revenue.
Wall Street is coming off a losing month, with the S&P and the Nasdaq posting losses of more than 4%. The Dow fell 5% for its worst monthly performance since September 2022.
