Asian stocks, Wall Street posts gains after Fed statement
Wall Street stocks rallied for the second day in a row on Thursday and have now reversed the sharp decline in the market earlier in the week.
The S&P 500 rose 1.2%, with more than 85% of benchmark companies posting gains. The Dow Jones Industrial Average gained 1.5% and the Nasdaq rose 1%.
The rally set the main clues to the pace of weekly gains just four days after a broad selloff gave the S&P 500 its biggest slippage since May and sent the Dow down more than 600 points.
The strong market swing from Monday, when the S&P 500 fell 1.7%, to Thursday, when it closed with a 0.4% gain for the week, reflects how quickly investor sentiment can change, and is another example of how in a market that is almost all-time high, traders tend to view waves of sells as buying opportunities.
Monday’s sale was sparked by concerns about the potential default of Evergrande, a huge Chinese private real estate developer in debt. Traders also felt uneasy about how quickly the Federal Reserve might choose to curb some of the support measures it has given to markets and the economy.
Those concerns were allayed on Wednesday, when the Federal Reserve signaled that it would not start considering such a decrease in support until at least November, and indicated that it could start raising its benchmark interest rate on next year. Investors also received reassuring news from China, where Evergrande said it would make a payment due Thursday on a domestic bond.
“The last few days have just been this recognition that all the things we talked about the market ignored,” said Michael Antonelli, managing director and market strategist at Baird, noting that the S&P 500 is only around. 1.5%. below its all-time high set earlier this month.
“The market was just ripe for a massive sale,” Antonelli said Monday. “We still haven’t had a 5% drop from highs this year.”
After the conclusion of its two-day policy meeting on Wednesday, the Fed said it would likely start slowing the pace of its monthly bond purchases “soon” if the economy continues to improve. The Fed and other central banks bought bonds throughout the pandemic to help keep long-term interest rates low.
“The reality is that the Fed is going to be wrong in not tightening anything on inflation until it absolutely has to,” said Brent Schutte, chief investment strategist, Northwestern Mutual Wealth Management Company. “They are going to stay as long as they can.”
Still, the markets had a tough September and investors could be more restless as they face a mix of concerns, Schutte said. This includes COVID-19 and its lingering impact on the economy, as well as a slow recovery in the labor market.
“People have gotten so used to a one-way market,” he said. “It will be more of a two-way market and investors need to get used to it, but I still think the trend is up.”
The change in investor sentiment has also put oil prices in the green. Benchmark US crude is now up 1.2% for the week.
Bond yields have risen sharply. The 10-year Treasury yield fell from 1.32% Wednesday night to 1.43%, a big step forward.
In total, the S&P 500 Index rose 53.34 points to 4,448.98. The Dow Jones gained 506.50 points to 34,764.82, while the Nasdaq rose 155.40 points to 15,052.24.
Tech companies and banks led the way on the upside on Thursday. Cloud-based software company Salesforce.com stood out with a 7.2% gain after raising its sales forecast for the year. Citigroup advanced 3.9%.
Small company stocks, which are generally a good measure of investor confidence in economic growth, also moved into the winning column. The Russell 2000 gained 40.48 points, or 1.8%, to 2,259.04. That’s up 1% for the week.
Other highlights include Olive Garden owner Darden Restaurants. Its title jumped 6.1% after posting strong quarterly results.
The European and Asian markets have increased.
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