Why Are Stocks Up Today?

  • Federal Reserve Chair Jerome Powell just gave the impression that the Fed will soon back off its rate hike spree.
  • The market still expects a 50 basis point increase in December.
  • However, Powell said the Fed may begin “moderating the pace of rate increases” as soon as next month.
An abstract image of a stock chart with two arrows pointing upward representing value stocks
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Why are stocks up today? It’s a simple question that investors want answered. That’s especially true given that equities have been marred in a bear market for all of 2022. Now more than ever, investors want to know why stocks are moving higher and even more so, if the rally is sustainable.

To answer the first question, stocks are rallying on Wednesday following comments from Federal Reserve Chair Jerome Powell. The S&P 500 is up 2% while the Nasdaq and Dow Jones Industrial Average are up 3% and 1%, respectively.

The Fed has been incredibly hawkish in 2022, raising interest rates to combat high inflation. Because the Fed was late to the game, it also had to significantly raise rates several times in a row. That included a 50 basis point hike and four consecutive 75 basis point increases.

Now, the Fed is looking to slow down on the size — and potentially the pace — of its rate hikes.

All week, investors have been looking toward Powell’s speech, which was slated for Wednesday afternoon. While the Fed has continued to talk about a hawkish stance and a restrictive policy, the market had inklings that it was about to pull back the reins a bit.

Earlier this month, the October inflation report came in below expectations. At the same time, real-time inflation measures continue to point to a softening inflation picture. Oil prices recently hit an 11-month low, too.

All of these have the Fed looking to slow its roll when it comes to rate hikes.

Why Are Stocks Up Today? The Fed.

While Powell and the Fed have been careful not to telegraph an accommodative stance, they are making it clear that the Fed will likely raise rates by 50 basis points next month rather than 75.

There is one more hike coming this year, that’s for certain. But if the inflation report for November — due up on Dec. 13 — comes in below expectations, you can expect a more relaxed Fed going forward.

Some of Powell’s key comments from today include the following:

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting […] History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

While Powell cautioned investors that the Fed is in no hurry to loosen its monetary policy by cutting interest rates, voting members do seem to recognize the risk of over-tightening — something the Fed wants to avoid.

Of course, the market understands that the Fed has more work to do regarding inflation. But investors also realize that the Fed is easing off the gas, which is bullish.

On the date of publication, Bret Kenwell did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

Article printed from InvestorPlace Media, https://investorplace.com/2022/11/why-are-stocks-up-today-6/.

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