Wall Street rallies on eve of Fed chairman’s speech

Stocks rallied Thursday as the countdown ticked closer to zero for a highly anticipated speech about U.S. interest rates.

The S&P 500 gained 58.35 points, or 1.4%, to 4,199.12 for its best day in nearly two weeks. Much of the lift came late in the day as traders made moves ahead of this morning’s speech by Federal Reserve Chairman Jerome Powell. The Fed chief’s speech has long been circled on Wall Street’s calendar.

The Dow Jones Industrial Average rose 322.55 points, or 1%, to 33,291.78, and the Nasdaq composite climbed 207.74 points, or 1.7%, to 12,639.27. All three indexes trimmed their losses for the week.

Treasury yields eased to let off some of the pressure on Wall Street after the release of several reports on the economy. Fewer workers applied for jobless claims last week than expected, an encouraging sign for a jobs market that has been the main pillar for an economy struggling under high inflation.

A revised reading on the overall economy, meanwhile, suggested that its contraction during the spring wasn’t quite as bad as previously thought. Gross domestic product shrank 0.6% on an annualized basis, according to the government’s second preliminary reading, which is milder than the 0.9% given as an initial estimate.

The 10-year Treasury yield, which affects mortgage rates, fell to 3.03% from 3.11% late Wednesday.

That helped stocks that tend to benefit the most from lower interest rates, such as internet and technology companies. Businesses whose profits closely track the strength of the economy, such as producers of raw materials, also helped to lead the market.

Telehealth services providers were strong Thursday after Amazon.com Inc. shut down its in-house telemedicine service for employees. Teladoc Health Inc. gained 4% on the day.

On the losing end Thursday were several companies that trimmed their financial forecasts for the year. Software company Salesforce Inc. fell 3.4%, and discount retailer Dollar Tree Inc. fell 10.2%.

Several retailers have cut their outlooks recently, even after reporting stronger profit for the latest quarter than expected. They’re struggling with swelling inventories and higher costs, while their customers likewise get squeezed by inflation, particularly lower-income customers.

Wall Street’s focus, though, remains on Jackson Hole, Wyo., where economists from around the world are gathering for the Fed’s annual symposium.

It’s been the setting for market-defining announcements by the Fed in past years, and investors are hoping Powell will offer some clarity about where interest rates are heading.

The Fed has already raised rates four times this year in its efforts to halt high inflation, with most of them being bigger than usual, and investors want to hear how it’s leaning for future increases.

Besides what the Fed will do with its key overnight interest rate, Powell may also talk today about how the central bank is putting into reverse the “money printer ” it used during the height of the pandemic to goose the economy.

Stocks had jumped through the summer on hopes that the Fed may go easier on rate increases than feared, because investors were seeing signs the nation’s high inflation may be peaking. The hope was that the Fed could downshift the size of its rate increases sooner than expected and may not ultimately raise them as far as previously thought.

But recent comments from a spate of Fed officials have pushed back on that narrative, leading to the hopes for more clarity from Powell on Friday.

Expectations have built among some investors for Powell to sound “hawkish,” which is Wall Street’s euphemism for a bias toward raising rates aggressively. But some investors are speculating that the Fed could turn around quickly and begin cutting interest rates in 2023, given mounting pressures on the economy.

“The market is looking for a consistent policy,” Andy Sparks, head of portfolio management research at MSCI Inc., said in a statement. “Raising rates and then allowing the market to believe it may soon begin lowering rates could undermine Fed credibility with market participants.” Higher interest rates are meant to slow the economy in hopes of undercutting inflation. But they also risk choking off the economy if done too aggressively, and higher rates pull down on prices for all kinds of investments.

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