Wall Street Rises as Fed’s Powell Signals Tapering in November

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Key Takeaways

• Stocks on Wall Street advance broadly as Jerome Powell gives insights into tapering
• Global market mood has strengthened as Evergrande fears have subdued

Wall Street Stocks Rise Broadly

Stocks on Wall Street clawed back from early-week losses Wednesday in a broad-based swing to the upside. The catalyst for the rebound – the US Federal Reserve signaled it could begin to reverse its easy-money policies in November.

All three stock gauges advanced yesterday with the S&P500 and the Dow Jones Industrial Average snapping a four-day losing streak. The Dow Jones Industrial Average advanced 338.48 points, or 1.00%, to close at 34,258.32. The S&P500 gained 41.45 points, or 0.95%, to 4,395.64. The tech-driven Nasdaq Composite added 150.45 points, or 1.02%, to end the day at 14,896.85.

Earlier in the week, fears of a potential Evergrande collapse caused a significant pullback in equities. The deeply indebted real-estate Chinese developer is facing bankruptcy if it does not manage to pay its loans of over $300bn. The repercussions, according to economists, could be widespread and reach the global financial system due to Evergrande’s many connections with foreign banks and investors.

Federal Reserve Announcement Calms Investors

On Wednesday, the mood was largely improved as investors shifted their focus on the highly-anticipated Federal Reserve press conference. To conclude a two-day monetary policy meeting, Federal Reserve Chairman Jerome Powell appeared virtually and announced the updates.

Before Mr. Powell’s speech, the Federal Reserve released its Federal Open Market Committee (FOMC) statement, which described how Fed officials viewed the current state of the economy.

“The path of the economy continues to depend on the course of the virus,” the statement said. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.”

The Federal Open Market Committee said it is closely following the developments around labor market conditions, public health, and inflation pressures.

“In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate.”

Tapering Could Begin in November, Powell Says

In relation to withdrawing the monetary stimulus of $120bn in monthly asset purchases, the statement did not offer a specific date. “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” the note said.

On that end, Fed Chair Jerome Powell said at the press conference that at their November meeting, Fed officials could “easily move ahead” with setting a specific date on which to begin tapering. He also added Fed policymakers have agreed to fully withdraw the monetary stimulus by mid-2022.

On the interest rates front, the Fed decided to keep them unchanged. However, according to the projections, released Wednesday, half of 18 officials expect higher rates by end of 2022.

In Other Markets on Thursday

Elsewhere in the markets, European bourses opened Thursday’s session on a positive note. Benchmark indexes across the old continent pushed higher on Wednesday and added to their gains early on Thursday. The pan-continental Stoxx 600 gained 0.99% on the day, extending Tuesday’s bounce. On Thursday, the Stoxx 600 is trading higher by about 0.8%.

Bitcoin surged almost 12% since its low point on Wednesday to a current market price of $44,500 per coin.