Stocks rise after Fed says rates may stay low for longer

NEW YORK (AP) — Stocks are pushing further into record heights in morning trading on Wall Street Thursday after the Federal Reserve made a major overhaul to its strategy, one that could keep interest rates lower for longer.

Trading was jumbled after a highly anticipated speech from Fed Chair Jerome Powell, where he essentially said the Fed may continue to pump aid into the economy even if inflation rises above its target level of 2%, as long as it had been weak before then. Prices for stocks, bonds and gold all made several U-turns in the minutes after Powell began talking.

The change in the Fed’s strategy is a huge deal for markets because the central bank has been the superhero repeatedly rescuing it from crises through the years, by slashing short-term interest rates and buying all kinds of bonds.

The S&P 500 wobbled at the onset of trading, bouncing between a tiny loss and a gain of 0.6%. It was up 0.5%, as of 10:39 a.m. Eastern time.

The benchmark index is coming off a five-day winning streak and has returned to a record level after the immense support of the Fed helped halt its free-fall earlier this year and erase its pandemic losses. Low rates often act like steroids for stocks, allowing their prices to rise faster than corporate profits.

The Dow Jones Industrial Average was up 253 points, or 0.9%, at 28,585, and the Nasdaq composite was up 0.3%.

“The era of easy money is here,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial.

Treasury yields fell immediately after Powell began talking, but then started bouncing up and down. The yield of the 10-year Treasury was at 0.71%, up from 0.68% late Wednesday.

Shorter-term Treasury yields dipped, with the two-year yield ticking down to 0.13% from 0.14%, and the widening gap between short- and longer-term yields could be an indication of higher expectations for the economy or inflation among investors.

Gold was down 0.9% at $1,935.10 per ounce after initially spiking as high as $1,987.00 after Powell began talking. It mirrored the movements of the 10-year Treasury yield. Lower yields can drive demand for gold from investors seeking safety but not interested in the lower interest payments coming from bonds.

Earlier in the morning, a report showed the pace of layoffs sweeping the country remains incredibly high but may be slowing. A little more than 1 million U.S. workers applied for unemployment benefits last week, which was a slight dip from the slightly more than 1.1 million the prior week.

In another report, the government also said that the economy looks like it shrank at an annual rate of 31.7% in the spring quarter. That would be the sharpest quarterly drop on record, but it’s not as bad as the Commerce Department’s earlier estimate of 32.9%.

Abbott Laboratories jumped 7.7% for the biggest gain in the S&P 500 after federal regulators gave emergency use authorization for its COVID-19 test, which can provide results in 15 minutes and will cost only $5.

Stocks of companies that sorely need people feeling comfortable enough with the pandemic to get back to “normal” life were also strong. Norwegian Cruise Line was up 6.4%, Live Nation Entertainment rose 6.2% and United Airlines rallied 6.2%.

In European stock markets, the German DAX lost 0.4%, and France’s CAC 40 slipped 0.2%. The FTSE 100 in London was virutally flat.

In Asia, Japan’s Nikkei 225 slipped 0.4%, and South Korea’s Kospi lost 1%. The Hang Seng in Hong Kong fell 0.8%, and stocks in Shanghai rose 0.6%.

Benchmark U.S. crude oil fell 2% to $42.53 per barrel. Brent crude, the international standard, lost 1.7% to $45.37 per barrel.

Source: https://www.daytondailynews.com/news/nation-world/global-stocks-lower-ahead-of-us-fed-chairs-speech/BOWIG5K6BNEELDTUDHKD4DOFY4/

Stock, Federal Reserve System, TYO, Jerome Powell, Nikkei 225, Chair of the Federal Reserve of the United States, Japanese yen, Stock market index