Stocks soar to records while relief rates remain low

NEW YORK Wall Street soared to records on Friday after the Federal Reserve chief said it was far from hitting interest rates from record lows, helping markets rise even as it begins to reverse its support for the economy later this year. .

The S&P 500 rose 39.37, or 0.9 percent, to 4,509.37, surpassing its previous all-time high on Wednesday as part of a widespread rally that swallowed everything from bonds to gold. The Dow Jones Industrial Average climbed 242.68 points or 0.7 percent to 34,455.80 and the Nasdaq composite gained 183.69 or 1.2 percent to 15,129.50.

Equities have set record after record this year, thanks in large part to the massive efforts of the Federal Reserves to prop up the economy and financial markets. But gains had become more cautious as the beginning of the end of the Fed’s aid came in sight, as the unemployment rate has fallen and inflation has risen.

In a speech that has been circling investors for weeks, Federal Reserve Chairman Jerome Powell said the economy has reached a major milestone set by the central bank to slow down the $120 billion in bond purchases it makes each month. That could mean scaling back on purchases designed to keep longer interest rates low and boost the economy towards the end of the year.

But Powell also cited past mistakes of policymakers taking premature steps in the face of apparently high inflation, and reiterated that the current high inflation appears to be only temporary. He also made it clear that a slowdown in Fed bond purchases does not mean a hike in short-term interest rates is imminent. That would require the labor market and inflation to stand in the way of significantly tougher testing.

We have a lot to do to maximize employment, Powell said.

At the end of Powell’s speech, many investors took it as a sign that the Fed will continue to support the market with low interest rates, which can act as steroids for stocks. In Wall Street jargon, it was meek rather than hawkish, which would have argued for a faster rate hike.

He didn’t speak it as much as he cherished it, said Ernesto Ramos, US Chief Investment Officer at BMO Global Asset Management. He was super sweet.

Shares of companies whose profits are most closely tied to the economy made the biggest gains after the speech. Smaller companies have been especially strong, with the small-cap Russell 2000 index rising 2.9 percent, more than triple the gains for the major stocks in the S&P 500. They often do best when investors are more optimistic about lower rates and a stronger economy.

Markets love it, Ramos said. But he also warned that the longer ultra-low rate policy is helping to prop up the markets, the pullback could be worse when it’s finally exhausted.

It reinforces our view that markets will continue to do well this year, he said. But if the accommodation is completely removed, how bad is a hangover? Just like a party, the hangover is less bad if you leave earlier.

Government bond yields were lower, but only after some fluctuations. After hitting 1.35 percent shortly before Powell’s speech, yields on the 10-year Treasury fell as Powell cited past cases of policymakers raising interest rates prematurely amid concerns about short-term inflation bursts, saying that such an error could now be particularly harmful .

Yields later recovered a bit from their decline after Powell said substantial further progress had been made on his inflation targets, one of two milestones the Fed needs to slow down its bond purchases. The other, which focuses on employment, has shown progress, but Powell did not say it had been realized.

The 10-year Treasury yield stood at 1.30 percent late Friday, down from 1.34 percent at the end of Thursday.

Of course, Powell also said that the delta variant of the coronavirus complicates things, though he still expects the improvements to continue.

The more rapidly spreading delta variant has already slowed down some economic activity. A report from Friday found that consumer spending in the country rose 0.3 percent in July from June, a sharp slowdown from the 1.1 percent jump in previous months. That’s a big deal when consumer spending has been the driving force of the US economy, and its growth has slowed, although income growth for Americans accelerated to 1.1 percent last month.

The report also found that a Fed-preferred measure of annualized inflation held steady at 3.6 percent in July, slightly higher than economists had expected.

The next date circled on investors’ calendars is in a week’s time, when the government reports how many people companies hired in August. A strong report could give the Fed even more leeway to slow its bond purchases.

Commodity producers made the biggest jumps in equity markets as lower yields and a weakening dollar pushed up prices for oil, gold and other commodities.

Occidental Petroleum rose 6.9% for the biggest gain in the S&P 500, and miner Freeport-McMoRan rose 5.9%.

On the losing side was Peloton Interactive, which fell 8.5 percent. It reported a loss for the last quarter, slashed the price of its most popular product and revealed it has been subpoenaed by the Department of Justice and the Department of Homeland Security for documents related to reporting injuries related to its fitness equipment.

Foreign stock markets were mixed.

By STAN CHOE

AP writer Annabelle Liang contributed.