In a holiday-shortened week of trading, stocks posted healthy gains despite more tough talk on monetary policy from Fed officials.
The Dow Jones Industrial Average rose 2.66%, while the Standard & Poor’s 500 gained 3.65%. The Nasdaq Composite index picked up 4.14% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 1.26%. 1,2,3
Stocks fell coming off the Labor Day weekend, dragged down by news that Russia was cutting off natural gas supplies to its European customers. Stocks also were under pressure due to a surprisingly strong report on business conditions, which heightened fears of continued Fed hawkishness.
Sentiment quickly improved as bond yields turned lower and oil prices fell. Investors reacted positively to comments by Fed Vice Chair Lael Brainard, who reiterated the Fed’s commitment to quashing inflation while acknowledging the risks of going too far. Stocks added to their gains on Thursday as the market digested another speech from Fed Chair Powell and a 0.75% hike by the European Central Bank. The markets surged on Friday amid little news, ending a positive week on an upbeat note.
No Inflation Walk Back
In his first public comments since his speech at Jackson Hole that sent markets into a tailspin, Fed Chair Powell did not seek to soften the edges of the Fed’s commitment to fighting inflation. In an interview on Thursday, Powell reaffirmed the need for sustained and robust actions to bring down inflation. He emphasized that it was critical that “the longer inflation remains well above target, the greater the risk the public does begin to see higher inflation as the norm, and that has the capacity to really raise the costs of getting inflation down.”4
With the Federal Open Market Committee (FOMC) set to meet on September 20-21, these comments may indicate that market expectations of a rate hike of 0.75% this month align with the Fed’s plans.
Footnotes and Sources
2. The Wall Street Journal, September 9, 2022
3. The Wall Street Journal, September 9, 2022
4. The Wall Street Journal, September 8, 2022
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Weekly Market Insights: Markets Upbeat, Despite Gloomy Inflation Talk
September 14, 2022