Stocks rose on Wednesday – trying to shake off a three-week decline – as rates and oil prices eased, easing investor concerns about continued high inflation.
The Dow Jones Industrial Average gained 481 points, or 1.55%. The S&P 500 rose 1.99% and the Nasdaq Composite rose 2.33%, trying to break a seven-day losing streak.
US Treasury yields fell after jumping on Tuesday. Oil prices fell, with West Texas Intermediate crude plunging below $85 a barrel. The pound sterling has hit its lowest level against the dollar since 1985.
Stocks rallied as Fed Vice Chairman Lael Brainard reaffirmed that the central bank would do what it takes to stifle inflation, while noting the risks of going too far. Many traders decided to focus on this last point as soon as he spoke.
“At some point in the tightening cycle, the risks will become more two-sided,” Brainard said. “The speed of the tightening cycle and its global nature, as well as the uncertainty about the pace at which the effects of tightening financial conditions feed through to aggregate demand, create risks associated with excessive tightening.”
The upward moves reversed an earlier plunge into negative territory in futures trading. Stock futures fell after a Wall Street Journal article suggested that Federal Reserve Chairman Jerome Powell’s pledge to cut inflation could mean the central bank would raise rates by 0, 75 percentage points in September, which would be the third consecutive increase of this size.
Markets had been hoping the Fed would start granting more modest increases from September, but are now pricing in an 86% chance of a 0.75 percentage point hike.
On Wednesday, the Federal Reserve gave its summary of current economic conditions, known as the Beige Book. The report showed that economic activity has changed little in many parts of the United States and growth prospects remain weak.
Stocks have struggled recently as Treasury yields trade around their highest levels since June. Moreover, September has always been the most difficult month for the market. All eyes are on the 3,900 level of the S&P 500. Some see the index falling to even lower lows, while others are bullish on a year-end rally.
“With equities back to June lows and the rate path reset, further inflation easing as well as decisive EU government intervention to tackle the energy crisis could cause a further compression of the decline,” Barclays’ Emmanuel Cau wrote in a Wednesday note. “Overview, we think equities remain in a tough spot given a poor growth-policy trade-off.”