Stocks Rally Back as Fed Chief Clears Up March Hike Uncertainty…..
U.S. stocks recovered from yesterday’s selloff after Fed Chairman Jerome Powell began his two-day Congressional monetary policy testimony, in which he appeared to clear up some uncertainty regarding a looming March rate hike. Powell said he will support a 25 basis-point rate hike in two weeks, closing the door on expectations of a larger increase, which the markets seemed to take comfort in. Focus remained on the intensified attacks on Ukraine by Russia and the coinciding spike in oil prices. Oil prices, which have been a strong source of market skittishness, continued to surge as the markets assessed the implications on Russia’s exports of the swift sanctions put on the country by the U.S., European Union, and other global allies. Treasuries more than gave back yesterday’s rally with yields surging, though the yield curve did flatten. The U.S. dollar paused its advance, and gold trimmed a recent jump. Earnings news continued to pour in, with Dow member Salesforce offering mixed guidance, while Nordstrom issued a much stronger-than-expected outlook. In other equity news, Ford Motor Company announced plans to create distinct electric vehicle and internal combustion businesses within the company. ADP’s jobs report came in above forecasts, with a noticeable upward revision to the prior month’s figure, and mortgage applications dipped. In other economic news, the Fed’s Beige Book noted growth continued but was hampered by the virus, supply chain challenges, severe weather, and labor constraints. Europe recovered some of yesterday’s drop and Asia finished mixed with the turmoil in Ukraine and surge in oil continuing to command attention.
The Dow Jones Industrial Average rose 596 points (1.8%) to 33,891, the S&P 500 Index increased 80 points (1.9%) to 4,387, and the Nasdaq Composite advanced 220 points (1.6%) to 13,752. In moderate volume, 5.2 billion shares of NYSE-listed stocks were traded, and 5.2 billion shares changed hands on the Nasdaq. WTI crude oil surged $7.19 to $110.60 per barrel. Elsewhere, the gold spot price declined $14.60 to $1,929.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed at 97.38.
The Fed stayed in focus today, as the afternoon release of the Fed’s Beige Book—an anecdotal read on the nation’s business activity used by policymakers to prepare for their next monetary policy meeting—showed economic activity expanded at a modest to moderate pace since mid-January, with many districts reporting that the surge in COVID-19 cases temporarily disrupted business activity, along with severe winter weather. As a result, the Fed said consumer spending was generally weaker than in the prior report. The report also noted that manufacturing continued to grow at a modest pace, though all districts noted that supply chain issues and low inventories continued to restrain growth, particularly in the construction sector. Finally, the release said worker scarcity hampered strong demand for labor, and prices charged to customers increased at a robust pace, with firms reporting an increased ability to pass on prices to customers and in most cases demand remained strong despite price increases.
The ADP Employment Change Report showed private sector payrolls rose by 475,000 jobs in February, above the Bloomberg forecast calling for a 375,000 gain. January’s drop of 301,000 jobs was revised sharply higher to a 509,000 increase. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader February nonfarm payroll report, expected to show headline employment grew by 403,000 jobs and private sector jobs rose by 383,000. The unemployment rate is forecasted to dip to 3.9% and average hourly earnings are projected to rise 0.5% month-over-month (m/m) and be up 5.8% y/y.
The MBA Mortgage Application Index dipped 0.7% last week, following the prior week’s sharp drop of 13.1%. The decline came as a 0.5% gain for the Refinance Index was more than offset by a 1.8% decrease for the Purchase Index. The average 30-year mortgage rate continued to climb, rising 9 bps to 4.15%, and is up 92 bps compared to a year ago, which has likely hamstrung mortgage lending activity.
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