NEW YORK (AP) — U.S. stocks rose Wednesday after the Federal Reserve signaled it may not need to rein in Wall Street and the economy harder.
The S&P 500 rose 1.1% in early trading after a third consecutive monthly loss. The Dow Jones Industrial Average gained 221 points, or 0.7%, and the Nasdaq composite jumped 1.6%.
Stocks built on their gains as Treasury yields fell in the bond market after the Federal Reserve announced its decision to keep interest rates steady, as expected. The Federal Reserve has already raised the overnight rate from near zero early last year to its highest level since 2001, above 5.25%.
Fed Chair Jerome Powell said in the afternoon that the central bank is still not sure its main interest rate is high enough to ensure high inflation falls to its 2% target. That kept alive the possibility of more rate hikes by the Federal Reserve. He also said that interest rate cuts, which can act as steroids for financial markets, are not even on the minds of Fed officials right now.
But Powell acknowledged that a recent rise in long-term Treasury yields, and the drop in stock prices that helped cause it, are acting alone to slow the economy and could be starving high inflation. of your fuel. If they can do that persistently, he indicated they could help the Federal Reserve combat inflation without requiring further rate increases.
The jump in yields has already pushed the average 30-year fixed mortgage rate to nearly 8%, for example, "and those higher costs are going to weigh on economic activity to the extent this adjustment persists."
And, he said, the Federal Reserve has time to evaluate the full effects of its past rate hikes after unleashing a furious blitz that began early last year.
"It takes time, we know, and it can't be rushed," Powell said. "Slowing down is giving us a better idea of how much more we need to do, if we need to do more."
Taken together, Powell's comments were "dovish enough" for financial markets, according to Yung-Yu Ma, chief investment officer at BMO Wealth Management. "Dovish" is what Wall Street calls an inclination to keep interest rates lower, and Ma continues to hope that the Federal Reserve will not raise rates again.
Since the spring, longer-term Treasury yields have been rising rapidly and catching up with the Federal Reserve's overnight rate. They have recovered as the U.S. economy has remained remarkably resilient and the central bank has warned it could keep its short-term rates high for a long time. Last month, the 10-year Treasury yield surpassed 5% to hit its highest level since 2007.
High yields drive down the prices of stocks and other investments, while making borrowing more expensive for almost everyone. That slows down the economy and puts pressure on the entire financial system.
The 10-year Treasury yield sank to 4.76% on Wednesday from 4.92% late Tuesday. Much of the decline came after the Federal Reserve accepted the idea that higher bond yields and instability in financial markets could be slowing the economy on their own.
But yields were already falling in the morning following several mixed reports on the economy.
An ADP report suggested that hiring accelerated last month by employers outside the government, although not as much as economists expected. A more complete employment report from the US government will arrive on Friday.
A separate report said U.S. employers were announcing slightly more job openings in late September than economists expected. The Federal Reserve has been hoping for easing at that level, which could ease pressure on inflation without requiring many layoffs.
Meanwhile, a third report said the U.S. manufacturing sector shrank more last month than economists had forecast. Manufacturing has been one of the hardest hit areas of the American economy.
Bottom line, big U.S. companies continue to report stronger summer earnings than analysts expected, though that often hasn't been enough to offset concerns about higher yields.
DuPont fell 8.2% despite reporting higher profits for the latest quarter than analysts had forecast. He gave some financial forecasts for 2023 that fell short of analyst expectations as he sees weakness in China and other challenges.
Estee Lauder also pointed to slower growth in China, among other factors, when it cut some of its financial forecasts for its fiscal year. Its shares fell 18.9%.
On the winning side of Wall Street, chipmaker Advanced Micro Devices rose 9.7% after reporting stronger-than-expected earnings and revenue for the latest quarter. Its revenue forecast for the end of 2023 disappointed some analysts, but it also pointed to growth in 2024 coming from the rise of artificial intelligence.
Big tech stocks were also winners on Wednesday, along with other high-growth stocks typically seen as the biggest beneficiaries of lower interest rates.
Gains of 2.4% for Microsoft, 1.9% for Apple and 3.8% for Nvidia were the three strongest forces driving the S&P 500 higher.
In total, the S&P 500 rose 44.06 points to 4,237.86. The Dow Jones gained 221.71 to 33,274.58 and the Nasdaq added 210.23 to 13,061.47.
Earlier in the day, stock indices were mostly up in Europe and Asia.
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AP Business writers Matt Ott and Elaine Kurtenbach contributed.
