Stocks rose Wednesday — trying to shake off a three-week slide — as rates and oil prices eased, cooling investor concerns about continued high inflation.
The Dow Jones Industrial Average gained 435.98 points, or 1.40%, to end the day at 31,581.28. The S&P 500 rose 1.83% to 3,979.87. The Nasdaq Composite ticked up 2.14% to 11,791.90, breaking a seven-day losing streak.
U.S. Treasury yields dipped following a jump on Tuesday. Oil prices slumped, with West Texas Intermediate crude settling at $81.94 a barrel — its lowest close since January. The British pound hit its lowest level against the U.S. dollar since 1985.
Stocks rallied as Fed Vice Chair Lael Brainard reaffirmed that the central bank would do what it takes to stifle inflation, while also noting the risks of going too far. Many traders decided to focus on this latter point from her speech.
“At some point in the tightening cycle, the risks will become more two-sided,” Brainard said. “The rapidity of the tightening cycle and its global nature, as well as the uncertainty around the pace at which the effects of tighter financial conditions are working their way through aggregate demand, create risks associated with overtightening.”
The moves higher reversed an earlier dip into negative territory in futures trading. Stock futures slumped after a Wall Street Journal article suggested that Federal Reserve Chairman Jerome Powell’s commitment to reduce inflation could mean that the central bank hikes rates by 0.75 percentage point in September, which would be the third consecutive increase of that size.
Markets have been hoping that the Fed would start to hand out smaller increases starting in September, but at one point in the day, they were pricing in an 86% chance of a 0.75 percentage point hike.
On Wednesday, the Federal Reserve gave its summary on current economic conditions, known as the Beige Book. The report showed that economic activity was little changed in many regions across the U.S., and that growth outlooks remain weak.
Stocks have struggled recently as Treasury yields trade around their highest levels since June. On top of that, September has historically been the toughest month for the market. All eyes are on the 3,900 level on the S&P 500. Some see the index falling to even lower lows, while others are optimistic about a year-end rally.
“With equities back to June lows and the rates path reset higher, more inflation easing along with decisive EU government intervention to tackle the energy crisis could prompt another bear squeeze,” Emmanuel Cau of Barclays wrote in a Wednesday note. “Big picture, we think stocks remain in a tough spot given a poor growth-policy trade-off.”