Wall Street has thrown a party as Federal Reserve Chair Jerome Powell gave the speech that the market has been anticipating in Jackson Hole, Wyoming. The Dow climbed 716 points and the S&P 500 added 1.4 percent to wipe out the index’s weekly losses as market watchers interpreted Powell’s wording as a direct indication that rate reductions could come as early as September.
The Jackson Hole speech offered by Powell previously stirred optimism in the markets
Federal Reserve Chair Jerome Powell had made his speech at the Jackson Hole Symposium, and that is just what the market needed. In an interview with Virginia Business, Powell suggested that a reduction of interest rates that the investors and President Trump have been insisting might be in the offing, but he did not indicate how soon this might be put in place.
The immediate and dramatic response to the market was seen. The S&P 500 surged 1.4 percent and trimmed its weekly losses to zero, after five consecutive modest declines since it touched an all-time high. The Dow Jones Industrial Average gained 716 points, and it is now on its way to beat its December record high.
Powell made it clear that policy choices are not on an ordained course, but they depend on information and changing economic risks. He admitted that apprehension about the weakening job market has increased, yet there is great relief that inflation has dropped considerably and employment is constant, therefore, enabling the Federal Reserve to go slow with policy manipulation.
Market sectors rocket on rate expectancy
The gains were witnessed in various industries, with the airline stocks being among the best performers in the market. Business Standard observes that the NYSE Arca Airline index rose 5.7 percent, to its highest intraday trading in 5 1/2 months, and oil service stocks gained strongly as the Philadelphia Oil Service Index surged 5.1 percent to a four-month close.
Housing stocks had one of the best runs of the week, propelling the Philadelphia Housing Sector Index to its highest close in 2021. Stocks in the networking, steel, and computer hardware industries moved in a very strongly, along with the majority of the sectors.
Treasury yields fell severely after this Powell speech, including the benchmark 10-year note yield declining to 4.26% compared with 4.33%. The two-year Treasury rate, which better reflects Federal Reserve expectations, fell to 3.69 per cent, down sharply from the day before.
Markets around the world party
Other international markets joined in the rally with Asia-Pacific stock markets recording mixed results, which were generally positive. The Shanghai Composite Index of China rose 1.5% and Japan recorded a gain of 0.1% in its Nikkei 225 Index, although the Australia S&P/ASX 200 Index fell by 0.6 per cent.
Stocks in European markets were uniformly higher, with the French CAC 40 Index up 0.4%, Germany’s DAX Index up 0.3%, and the U.K.’s FTSE 100 Index gaining 0.1. The worldwide non-action seems to show a broad-based investor optimism on the possibility of Federal Reserve policy changes.
The way market probabilities shifted toward rate cuts
After Powell was speaking, its FedWatch Tool indicated an 83.1 percent chance that a quarter-point cut would be made in September. Home construction, small caps, and banks are regarded as the main beneficiaries of a low-interest-rate environment and could be poised to outperform.
The spectacular rise in the American stock market shows that investors are becoming confident in the intentions of the Federal Reserve to become accommodative after several months of tight policy. The well-produced Jackson Hole message managed to strike the right tone between the economy on the one hand and policy flexibility on the other, offering hope to the markets so much in need of it. With September looming, the great uncertainty comes as investors prepare to see what could be a considerable evolution in Federal Reserve policy.