Stocks bounce back as Fed rate-hike fears ease
U.S. stocks rose sharply on Monday, recouping a chunk of the largest losses in two months, with investors heartened by a Federal Reserve official retaining a dovish tone in speaking about her take on the central bank’s monetary policy.
After Friday’s 2.5 percent slide, the S&P 500 (SPX) gained 31 points, or 1.5 percent, at 2,159. The Dow Jones Industrial Average (I: DJI) jumped 240 points, or 1.3 percent, to 18,325. The Nasdaq Composite (COMP) added 86 points, or 1.7 percent, to 5,212.
All of the S&P 500’s 10 major industry groups advanced, led by telecom and consumer staples.
Equities maintained their rally mode after Fed Governor Lael Brainard advocated a cautious approach by the Fed as it considers a rate increase at its meeting next week. In her speech before the Chicago Council on Global Affairs, the last scheduled communique by a central bank official before the Federal Open Market Committee (FOMC) meets next week, Brainard suggested the U.S. economy, while improving, still isn’t firing on all cylinders.
Persistently muted increase in prices and wages “suggest some reasons to be concerned more about undershooting than overshooting” the Fed’s 2 percent inflation target.
Worries about a hike in the Fed’s benchmark rate knocked equities on Friday.
Within the Fed, Brainard has consistently urged policymakers to remain patient in raising interest rates, arguing that the labor market has yet to return to normal and that a premature hike in borrowing costs could cause economic growth to sputter.
“Insofar as Governor Brainard reflects the core of the FOMC, her remarks suggest that the Fed is more than comfortable remaining on the sidelines next week,” TD Securities analysts wrote in a note.
On Monday, chances for a rate hike next week declined to 22 percent.