Stocks Rise as Fed Chair Says Light at the End of the Tunnel Remains Distant
For the better part of a year, stock investors have overcome the epidemic. Rising rates of deaths, large-scale infections and macroeconomic catastrophe have not impeded market growth for long.
But recently, investors have become increasingly volatile outside of Wall Street, seeing the prospect of those who see as good news: a consensus that strong economic growth is on the way.
The economic recovery, combined with a surge in commodity prices and a sharp increase in yields on government bonds, sent the stock down for five straight sessions, as investors began to worry that the Federal Reserve may cut its support for the economy.
And on Tuesday, the S&P 500 reopened, before a sharp change pulled the streak. Reason for the increase: Jerome H., chair of the Federal Reserve. Powell reassured investors that the economy would still have to make a lot of progress before the Fed considered changing its policies.
“The economy goes a long way from our employment and inflation targets,” Powell told the Senate Banking Committee on Tuesday, and further progress is likely to take some time.
It was enough to reverse what would be the sixth straight loss day for the S&P 500, which was one-tenth of a percent. The race for Down Days was the longest since last February, although the overall loss was a modest 1.4 percent.
Mr. Powell sparked the nerves of pessimists who were worried that a policy change could happen sooner rather than later, said Scott Clemson, chief investment strategist for private banking Brown Brothers Hariman, An investment bank.
“Chairman Powell, in his testimony to the Senate Banking Committee today, seems like the quiet father who is willing to let the party go for some time before closing the bar,” Mr. Clemons said.
The emerging consensus that growth – and perhaps inflation – will be stronger than a few weeks ago has been buoyed by prices in major financial markets.
The yield on the 10-year Treasury note, a cornerstone of the financial markets by which risk and return is measured on most other investments, has risen to around 1.40 percent in recent times, touching the highest level in a year . Expectations of economic growth, inflation and monetary policy are the main drivers of bond yields.
Costs for key commodities – seen as a barometer of inflation – are also rising. Benchmark US crude oil prices are up nearly 17 percent this month, with a barrel price of West Texas crude now above $ 61. Copper, an important material for domestic construction and automobiles, is priced at 15 percent in February.
Recent economic data in the United States have also been stronger than expected, with consumer confidence, retail sales and industrial production updates reaching better than last week – all as national Kovid-19 vaccination efforts gained traction Continues to do.
Above all, President Biden and Democratic leaders in Congress are increasingly emphasizing the stimulus plan. Democrats are determined to pursue the measure using a parliamentary strategy in the Senate, known as reconciliation, that allows the bill to be moved to the president’s table without bipartisan support that would pass legislation Is normally required. It has sharply raised passage barriers for a significant portion of the administration’s $ 1.9 trillion proposal.
Increasing prospects of another big shot of stimulus have prompted economists to raise their projections for economic growth.
Last week, JPMorgan economists raised their 2021 actual growth expectations for the United States to 6.4 percent from 5.3 percent in the fourth quarter, as they estimated the stimulus package to total $ 1.7 trillion. Goldman Sachs economists, expecting a $ 1.5 trillion stimulus package and additional spending on infrastructure, say the US economy will grow 7 percent in 2021. And at Morgan Stanley, economists believe the stimulus package will descend north of $ 1 trillion and into the fourth quarter. The growth rate will be 7.6 percent from a year ago.
Meaning that with the economy rapidly approaching the end of the tunnel, investors were as hasty about the Fed’s changing course as they anticipated.
Most significant among his concerns: If inflation builds steam, the Fed may cut back on its bond-buying and other policies that have forecast the market to grow by more than 70 percent since March.
The portfolio manager of the Blackrock Global Allocation Fund, Ras Koesterich, said the Fed was the driving force behind the rally, and investors were aware of its movements. Like Mr. Clemmons, he said that he was not looking to end the party just yet.
“Investors are very sensitive to the possibility that the Punch Bowl may move a bit faster than people might have thought,” he said.