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David L. Nemec / New York Stock Exchange
The stock market gained Thursday as Federal Reserve Chairman Jerome Powell testified before Congress for a second day. Nothing he has said scared the market—for now.
The
Dow Jones Industrial Average
gained 195 points, or 0.6%, while the
S&P 500
rose 1% and the
Nasdaq Composite
advanced 1.6%.
Powell—speaking today about monetary policy with the House Financial Services Committee— didn’t mention anything that would make markets more concerned.
On Wednesday, Powell tested before the Senate Banking Committee, and said that if the economy and inflation slow down enough, the Fed would slow down the pace of its interest rate hikes.
That is music to the ears of the stock market, which has fallen this year partly because markets expect many rate hikes to come. The Fed is battling high inflation—and likely bringing down economic demand as it does so. The S&P 500 has dropped more than 20% from its all-time high, hit in early January.
“The slowdown is already underway,” said Marc Pfeffer, managing director at S64 Capital Innovation.
That means the rise in bond yields this year can slow down—and that’s already happening.
The two-year Treasury yield, which attempts to forecast the level of the federal funds rate a couple years from the present, dipped to just under 3.1%. That’s also down from a multi-year peak of 3.42% hit in mid-June, a welcome site for the stock market.
And Thursday’s stock gains continue a recent rally. The S&P 500 has now risen just over 4% from its intraday low for the year hit on June 17.
Those gains aren’t just driven by lower rates, but also because investors have a lot of cash they can put to work. That makes it highly plausible that market participants are beginning to buy beaten down stocks. As of a few days ago, fund managers surveyed by Bank of America were holding a larger percent of their portfolios in cash compared with a long-term average.
And now, all cash and cash-like securities globally have risen to almost 40% of the value of all stocks and bonds, according to JPMorgan. That is the highest level since before 2015. Some of that money might even support the price of bonds as well.
“Aggregate cash level are still very high so the base of liquidity that’s out there is directionally a positive in terms of resiliency in terms of the global financial system,” said Matthew Stucky, senior portfolio manager at Northwestern Mutual Wealth Management.
Those may be encouraging signs, but the recent stock market rally is on shaky footing. Most mini rallies have ended at lower levels each time this year. That dynamic can go on until markets have significantly more certainty on a slowdown of inflation and rate increases, as well as the extent of the economic damage.
“Equity rallies will be bear market rallies until [inflation] price pressures are more clearly under control,” wrote Dennis DeBusschere, founder of 22V Research.
Essentially, “the market is wavering between a [mere] growth scare and an all out recession,” wrote Quincy Krosby, Chief Equity Strategist for LPL Financial.
Elsewhere, initial jobless claims for the week totaled 229,000, slightly above economists’ expectations, but below last week’s 231,000.
These are some stocks on the move Thursday:
KB Home
(ticker: KBH) rose 8.8% after the home builder said it sees the housing market moderating but still expects to achieve its revenue goals this year.
Accenture
(ACN) fell 0.2% after its estimate for fiscal fourth-quarter revenue missed forecasts.
Darden Restaurants
(DRI) stock gained 0.4% after the company reported a profit of $2.24 a share, beating estimates of $2.21 a share, on sales of $2.6 billion, above expectations for $2.54 billion.
Snowflake
(SNOW) gained 12% after being upgraded to Overweight at JP Morgan.
Southwest Airlines
(LUV) stock rose 0.6% after getting upgraded to Strong Buy from Outperform at Raymond James.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Joe Woelfel at joseph.woelfel@barrons.com
.