Federal Reserve Chair Jerome Powell’s dovish remarks before Congress on Wednesday sent the stock market soaring, with major indices hitting record highs. Powell’s comments on a slowing economy and softer labor market were music to investors’ ears, sparking hopes of an imminent interest rate cut.
Key Takeaways
- Federal Reserve Chair Jerome Powell’s dovish remarks boost market sentiment.
- Major indices, including the S&P 500 and Nasdaq Composite, hit record highs.
- Investors anticipate a potential interest rate cut in the near future.
Powell’s Dovish Remarks
Appearing before a House committee, Powell reiterated the Federal Reserve’s data-dependent approach to interest-rate policy. However, markets reacted positively when he suggested that the Fed is increasingly concerned about a slowing economy and a softer labor market. Powell noted that disinflation has returned, and the economy is no longer overheated, much like before the pandemic.
"Powell noted that disinflation has returned after price pressures gained in the latter part of 2023," said José Torres, senior economist at Interactive Brokers. "He opined that the most likely path for the Fed is to ease, but he refrained from speculating on when the organization will make its initial move."
Market Reaction
Powell’s dovish tone was exactly what the markets wanted to hear. Investors are eager for the Federal Open Market Committee (FOMC) to enact its first quarter-point cut to the short-term federal funds rate. Although the FOMC signaled just one cut this year at the Fed’s June meeting, a slowing labor market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.
As of July 10, futures traders assigned a 70% chance that the FOMC will start easing at its September meeting, up from 45% a month ago, according to CME Group’s FedWatch Tool.
Record-Setting Day
By the closing bell, two of the three main benchmarks set record closing highs, thanks to mega-cap tech stocks. The broader S&P 500 added more than 1% to close at 5,663, topping the 5,600 level for the first time ever. The tech-heavy Nasdaq Composite gained 1.2% to finish at its own record of 18,647. The blue-chip Dow Jones Industrial Average rose 1.1% to end at 39,721.
Tech Stocks Lead the Charge
Nvidia and Apple were among the top performers, with Nvidia stock alone adding $87 billion in market value on Wednesday. Apple shareholders saw their wealth expand by $65 billion. Nvidia has been the market’s favorite pure-play bet on all things AI, while Apple’s long-term returns remain unparalleled.
Looking Ahead
The next key event for investors is the Consumer Price Index (CPI) report, set to be released ahead of Thursday’s open. This report will be closely watched for clues on when the first rate cut might occur. Annual headline inflation is forecast to increase by 3.1%, down from the 3.3% rate seen in the May CPI report. On a monthly basis, June inflation is forecast to rise 0.1%, essentially unchanged from the prior month.
Conclusion
Powell’s dovish remarks have reignited investor optimism, leading to a surge in the stock market. With major indices hitting record highs and the potential for an interest rate cut on the horizon, all eyes will be on the upcoming CPI report for further clues on the Fed’s next move.
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