U.S. stocks closed higher Thursday after Federal Reserve Chairman Jerome Powell concluded a second day of congressional testimony with a vow to battle inflation, even if it risks a recession.
What happened with stocks?
- The Dow Jones Industrial Average DJIA, +0.64% rose 194.23 points, or 0.6%, to end near session highs at 30,677.36, after flipping between gains and losses.
- The S&P 500 SPX, +0.95% rose 35.84 points, or 1%, to end at 3,795.73.
- The Nasdaq Composite COMP, +1.62% increased 179.11 points, or 1.6%, closing at 11,232.19.
On Wednesday, the Dow fell 47 points, or 0.1%, while the S&P 500 and Nasdaq Composite finished slightly lower.
What drove markets
Stocks rose despite concerns about a potential sharp economic downturn as the Federal Reserve gets more aggressive in tightening monetary policy. Fed Chair Jerome Powell said Thursday he doesn’t think a recession is inevitable, but that he also has an “unconditional” commitment to fight inflation, in his second day of testimony to Congress on interest-rate policy.
“It’s a clear signal that the Fed doesn’t have the market’s back anymore,” said Anthony Saglimbene, Ameriprise Financial’s global market strategist, of Powell’s testimony. “I think the Fed is unbothered of slowing growth if it causes a shallow recession.”
With that, Saglimbene expects it to be a tough summer for stocks, with little reason for investors to turn bullish until there’s more clarity on where U.S. inflation is headed and also on what’s “the Fed’s stopping point for rate hikes,” he said.
Given the jittery backdrop, it was difficult to pinpoint an exact driver of gains. “Dip buyers, bottom pickers, quarter-end rebalancing, rotation out of commodities into stocks. Pick your favorite,” said Mohannad Aama, a portfolio manager at Beam Capital Management.
Recent talk of recession has brought the yield on the 10-year Treasury TMUBMUSD10Y, 3.089% down to 3.068% from as high as 3.48% earlier this month. Falling yields can help long-duration assets such as technology stocks and bitcoin BTCUSD, -0.11%, which rose in early action on Thursday.
“It’s been candid,” said Alessio de Longis, senior portfolio manager at Invesco, of Powell’s testimony, noting that he admitted to the challenges the Fed faces in trying to tame inflation with higher rates, and how seriously they are taking it.
“Powell was been very honest in assessing that achieving a soft landing is a difficult balancing act,” de Longis said.
Only in the past three weeks have stocks begun to start discounting the risks of a meaningful slowdown, he said, adding that equities could have further to reprice, depending on how earnings, inflation and economic data shakes out in the year’s second half.
In economic data, new filings for unemployment benefits declined by 2,000 last week to 229,000 while remaining near a five-month high. It’s the latest sign that the U.S.’s red-hot labor market is finally starting to cool.
U.S. private-sector activity saw a sharp slowdown in growth in June, a pair of surveys showed, as high inflation forced customers to cut back on orders and rising interest rates induced worries about a recession.
The S&P U.S. services index fell to a five-month low of 51.6 in June from 53.4 in the prior month, based on flash or preliminary survey. The U.S. manufacturing index, meanwhile, slid to a nearly two-year low of 52.4 from 57 in the prior month. A reading above 50 indicates expansion.
Companies in focus
- Netflix Inc. NFLX, +1.58% shares rose 1.6% after executives confirmed ads are coming to the streaming service.
- Walmart Inc. WMT, +2.43% shares gained 2.4% after it rolled out a plan expanding healthcare coverage of women to help address racial inequities in maternal care.
- Revlon REV, -11.55% shares retreated 11.6% Thursday following a torrid rally that was reminiscent of the “meme stock” craze from early 2021, as the company’s heavily shorted shares have surged more than 300% since the firm filed for bankruptcy protection.
- Altria Group MO, +2.43% shares rose 2.4%, despite the FDA ordering Juul e-cigarettes to be banned in the U.S. market.
- Boxed BOXD, -17.89%, the online wholesale retailer, saw its shares fall 17.9%.
- Occidental Petroleum OXY, +0.57% shares rose 0.6% as Berkshire Hathaway CEO Warren Buffett increased his firm’s stake in the oil-and-gas company, according to regulatory filings cited by The Wall Street Journal.
How other assets traded
- West Texas Intermediate crude CL.1, -2.04% for August delivery shed 1.8% to settle at $104.27 a barrel, the lowest since May 10, according to FactSet.
- The ICE U.S. Dollar Index DXY, +0.20% was up 0.2%.
- The Europe STOXX 600 fell 0.8%, while the FTSE 100 shed 1%.
- The Shanghai Composite SHCOMP, +1.62% gained 1.6%, while Hong Kong’s Hang Seng Index HSI00, -2.30% rose 1.3% and Japan’s Nikkei 225 NIK, +0.08% climbed 0.1%.
—Steve Goldstein contributed reporting