US stocks rise on Fed chair inflation comments

US stock indexes gained ground on Tuesday with Nasdaq leading the advance as investors were relieved that Federal Reserve Chair Jerome Powell’s testimony to Congress did not include any major surprises.

Powell, in a congressional hearing that pointed to his likely confirmation for a second term in the job, said the US central bank, was determined to ensure high inflation did not become “entrenched.”

But he added that rather than diminishing job growth, the Fed’s tightening plans which include higher interest rates and a reduction in its asset holdings were necessary to maintain the economic expansion.

After falling just 1 percent earlier in the day, the interest rate sensitive technology sector bounced back and brought the broader indexes with it. Technology-laden Nasdaq closed up 1.4 percent marking its biggest daily gain so far this year.

Powell’s comments likely reassured investors that the Fed was not going to prioritise inflation reduction above everything else, including employment, said Shawn Cruz, senior manager of trader strategy at TD Ameritrade in Chicago.

“The initial concern was the Fed would upset the pace of the recovery,” said Cruz. But the investor takeaway from Tuesday’s testimony was that “he’s not just going to try and crush inflation” without regarding “the other effects that could have on the economy.”

Investors had been selling stocks since January 5 when December meeting minutes showed Fed officials discussing how “very tight” job market and unabated inflation might require interest rate hikes sooner than expected and a reduction of the Fed’s overall asset holdings as a second brake on the economy.

While investors will anxiously watch inflation data due out on Wednesday, Cruz notes that they are already prepared for an elevated number with consensus forecasts for a 7 percent increase on a year-on-year basis for the headline Consumer Price Index (CPI).

The Dow Jones Industrial Average rose 0.51 percent, to 36,252, the S&P 500 gained 0.92 percent, to 4,713 and the Nasdaq Composite added 1.41 percent, to 15,153.

The S&P snapped a five-day slump, while the Nasdaq added to Monday’s tiny gain. It had started the week with an afternoon comeback that strategists attributed to an influx of retail investors hunting for bargains after an early session sell-off.

Vaccine maker Moderna finished down 5.3 percent after rising more than 9 percent on Monday. Pfizer’s vaccine partner BioNTech also fell 6.2 percent. The World Health Organisation said more research is needed to find out if existing Covid-19 vaccines provide adequate protection against the Omicron variant.

Casino operator Las Vegas Sands Corp rose 6.6 percent after J.P. Morgan upgraded the stock to a “overweight” rating.
Last updated: 2022-01-12 HKT 09:47