[New York Stock Market] Cheers for 'Dovish' Powell... S&P 500 Hits All-Time High

Powell "Rate Cut Confidence and Timing Are Near"
ECB Also Lowers Inflation Forecast
Focus on February Employment Report Released on the 8th

The three major indices of the U.S. New York stock market all closed higher on the 7th (local time). The S&P 500 index hit an all-time high following remarks by Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), suggesting that an interest rate cut is not far off. Prices of the 2-year Treasury bonds, which are sensitive to monetary policy, rose.

On that day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 38,791.35, up 130.3 points (0.34%) from the previous trading day. The large-cap focused S&P 500 index closed at 5,157.36, up 52.6 points (1.03%), breaking its all-time high. The Nasdaq index closed at 16,273.38, up 241.83 points (1.51%).

The market responded positively to Powell’s more dovish (monetary easing preference) remarks compared to the previous day.

[Image source=Yonhap News]

Powell appeared before the U.S. Senate Banking Committee on the same day, following his appearance before the House of Representatives the day before, stating that the Fed would not cut rates immediately but that the time to be confident enough to cut rates was not far off. He said, "When we gain more confidence that inflation is persistently slowing to 2%, it will be appropriate to reverse the current restrictive level of rates to avoid a recession," adding, "We're not far from it."

He also assessed that the current interest rates are higher than the 'neutral rate.' Powell said, "Rates have now entered a restrictive zone," and "They are above the neutral rate and now far from it."

Investors interpreted Powell’s remarks on this day as even more dovish than his previous day’s statement to the House, which suggested a rate cut within the year.

Adam Turnquist, Chief Technical Strategist at LPL Financial, analyzed, "The market has been expecting this and finally heard it from a Fed official," adding, "(Powell) is adding confidence to the market that a rate cut is approaching."

The market expects the Fed to make its first rate cut in June. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day priced in nearly a 74% probability that the Fed will cut rates by at least 0.25 percentage points in June, up from 69% the previous day.

Following Powell’s remarks, Treasury yields fell (=bond prices rose). The 2-year Treasury yield, sensitive to monetary policy, dropped 5 basis points (1bp = 0.01 percentage points) to 4.5%, while the U.S. 10-year Treasury yield, a global bond yield benchmark, fell 4 basis points to around 4.08%.

Additionally, the European Central Bank’s (ECB) downward inflation outlook also stimulated investor sentiment. The ECB kept its benchmark interest rate steady at 4.5% while lowering its inflation and growth forecasts. The inflation forecast for this year was revised down to 2.3%, and the economic growth forecast to 0.6%. This led to optimism about global inflation easing and potential rate cuts.

Fawad Razaqzada, an analyst at City Index and Forex.com, analyzed, "Major central bank officials are providing strong hints that monetary policy will soon ease, causing risk asset prices to soar."

The employment data released on the day confirmed that the labor market remains robust. According to the U.S. Department of Labor, initial jobless claims for the week of February 25 to March 2 were unchanged at 217,000 from the previous week, slightly above the expert forecast of 215,000. Continuing claims, which count those claiming unemployment benefits for at least two weeks, rose by 8,000 to 1,906,000 for the week of February 18-24 compared to the previous week.

Investor attention is focused on the U.S. Department of Labor’s February employment report, which provides a clearer picture of the labor market. The market expects nonfarm payrolls to increase by 190,000 in February, nearly half the 353,000 increase recorded in January.

By individual stocks, Nvidia rose 4.47%, pushing the indices higher. Danish pharmaceutical company Novo Nordisk jumped 8.95% after releasing successful trial results for its obesity treatment. New York Community Bancorp (NYCB) rose 5.78% following the announcement of a $1 billion capital increase plan the previous day. Lingerie brand Victoria’s Secret plunged 29.7% after releasing annual earnings guidance that fell short of market expectations.

International oil prices are trading in a narrow range. West Texas Intermediate (WTI) crude oil fell $0.20 to $78.93 per barrel. Brent crude oil remained almost unchanged at $82.96 per barrel.