Stocks Stage Rally After Powell’s Policy Signals: Markets Wrap

(Bloomberg) -- Stocks climbed after Federal Reserve Chair Jerome Powell said the U.S. economy is expanding with enough force to withstand rate hikes while pledging to be judicious in removing stimulus.

More than 90% of the companies in the S&P 500 advanced, with financial, material and energy shares leading the charge. Two-year Treasury yields surpassed 1.5%, up from as little as 1.26% on Tuesday. Global commodity markets surged to multiyear highs after traders backed away from Russia, sparking anxiety that supply will fall short in everything from wheat to natural gas. Oil topped $110 a barrel.

Powell said the central bank will “proceed carefully,” emphasizing the “need to be nimble in responding to incoming data and the evolving outlook.” The Fed chief also noted he's inclined to back a quarter-point hike in March -- in line with market expectations -- and is open to “series of rate increases” in 2022.

Comments:

• “It is worth pointing out the great stress he placed, again, on being data-driven and nimble. Whereas a few weeks ago, that might have meant a very dynamic approach to inflation, it is quite likely this now means keeping a close eye on the economic growth numbers, said Jeanette Garretty, managing director at Robertson Stephens Wealth Management.
• “In light of the Chair's testimony, and events so far this week, we retain our monetary policy outlook, which anticipates five 25bp hikes to the policy rate in 2022, starting in March. We continue to expect a plan for (passive) balance-sheet normalization to be announced in May, and to be implemented in June,” said Barclays economists, led by Michael Gapen.

Earlier Wednesday, Fed Bank of St. Louis President James Bullard called for a “rapid withdrawal of policy accommodation,” while his Chicago counterpart Charles Evans said monetary policy is currently “wrong-footed” and needs to be upwardly adjusted toward neutrality.

Read: Summers Says Next Recession Will Likely Be Caused by the Fed

Russia's invasion was denounced by the United Nations General Assembly, underscoring Moscow's increasing isolation on the global stage, as U.S. authorities weighed restrictions on imports. The Russian military's advance continued, while Ukraine said it will take part in a second round of talks with Moscow on Thursday. The U.S. will postpone a Minuteman-III intercontinental ballistic missile test planned for this week to show restraint after President Vladimir Putin raised Russia's nuclear alert level over the weekend, Pentagon spokesman John Kirby said.

In U.S. corporate news, Citigroup Inc. said profitability will fall as the bank pursues a strategy shift that will raise expenses in the near term. Nordstrom Inc. soared after the retailer's sales and guidance topped expectations. Ford Motor Co. will separate its electric-vehicle operations from its legacy combustion-engine business in a historic reorganization of the 118-year-old company.

Sell-side analysts in the U.S. are getting more nervous about earnings forecasts, with profit revisions turning most negative since May 2020. Downgrades are now outweighing upgrades as the war in Ukraine, rising oil prices and policy tightening may weigh on economic growth.

What to watch this week:

• ECB publishes the account of its February meeting, Thursday
• Eurozone Markit services PMI, PPI, unemployment, Thursday
• U.S. factory orders, initial jobless claims, U.S. durable goods, Thursday
• U.S. unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.9% as of 4 p.m. New York time
• The Nasdaq 100 rose 1.7%
• The Dow Jones Industrial Average rose 1.8%
• The MSCI World index rose 1.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro was little changed at $1.1123
• The British pound rose 0.6% to $1.3403
• The Japanese yen fell 0.5% to 115.54 per dollar

Bonds

• The yield on 10-year Treasuries advanced 17 basis points to 1.90%
• Germany's 10-year yield advanced 10 basis points to 0.03%
• Britain's 10-year yield advanced 13 basis points to 1.26%

Commodities

• West Texas Intermediate crude rose 7.5% to $111.20 a barrel
• Gold futures fell 0.8% to $1,929 an ounce

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