Stocks Rally After Powell Says Rates "Just Below" Neutral - U.S. Commentary

(RTTNews) - After moving moderately higher early in the session, stocks saw further upside over the course of the trading day on Wednesday. The major averages climbed firmly into positive territory, further offsetting the weakness seen last week.

The major averages ended the session at their best levels of the day. The Dow surged up 617.70 points or 2.5 percent to 25,366.43, the Nasdaq spiked 208.89 points or 3 percent to 7,291.59 and the S&P 500 soared 61.61 points or 2.3 percent to 2,743.78.

The rally on Wall Street came on the heels of Federal Reserve Chairman Jerome Powell's remarks in a speech to the Economic Club of New York that were interpreted as dovish for interest rates.

Powell noted interest rates are still low by historical standards and said rates are currently "just below the broad range of estimates of the level that would be neutral for the economy."

The latest remarks seem to conflict with comments Powell made early last month, when he described rates as a "long way from neutral."

Powell also said the economy is close to achieving both of the Fed's objectives of promoting maximum employment and price stability.

The Fed Chief stressed rates are not on a "preset" path and said the central bank will pay very close attention to incoming data.

"As always, our decisions on monetary policy will be designed to keep the economy on track in light of the changing outlook for jobs and inflation," Powell said.

Ahead of Powell's remarks, President Donald Trump attacked the Fed Chairman in an interview with the Washington Post published late Tuesday.

Trump told the Washington Post he is "not even a little bit happy" with Powell, blaming the Fed for recent stock market weakness and General Motors' (GM) announcement of plant closures and layoffs.

"I'm doing deals, and I'm not being accommodated by the Fed," Trump said. "They're making a mistake because I have a gut, and my gut tells me more sometimes than anybody else's brain can ever tell me."

"So far, I'm not even a little bit happy with my selection of Jay. Not even a little bit," he added. "I think that the Fed is way off-base with what they're doing."

CME Group's FedWatch tool currently indicates an 82.7 percent chance the Fed will raise rates by another quarter point to a range of 2.25 to 2.50 percent at its monetary policy meeting next month.

Meanwhile, traders largely shrugged off a report from the Commerce Department showing a substantial decrease in new home sales in the month of November.

The Commerce Department said new home sales plummeted by 8.9 percent to an annual rate of 533,000 in October from an upwardly revised rate of 597,000 in September.

Economists had expected new home sales to rise to a rate of 575,000 from the 553,000 originally reported for the previous month.

With the steep drop, new home sales tumbled to their lowest level since hitting an annual rate of 538,000 in March of 2016.

Sector News

Software stocks moved sharply higher over the course of the session, driving the Dow Jones Software Index up by 4.3 percent. The index continued to recover after hitting its lowest closing level in nearly five months last Tuesday.

Within the software sector, salesforce.com (CRM) posted a standout gain after the customer-management software developer reported better than expected fiscal third quarter results and raised its full-year revenue guidance.

Substantial strength also emerged among retail stocks, which have recently benefited from reports of strong Black Friday sales. Reflecting the strength in the retail sector, the Dow Jones Retail Index soared by 3.8 percent.

Gold stocks also turned in a particularly strong performance, resulting in a 2.9 percent jump by the NYSE Arca Gold Bugs Index. The strength among gold stocks came amid a notable increase by the price of the precious metal.

Biotechnology, steel, computer hardware, and transportation stocks also moved notably higher on the day amid broad based buying interest on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index jumped by 1 percent, while Hong Kong's Hang Seng Index surged up by 1.3 percent.

Meanwhile, the major European markets turned in a lackluster performance on the day. While the French CAC 40 Index closed nearly flat, the German DAX Index and the U.K.'s FTSE 100 Index edged down by 0.1 percent and 0.2 percent, respectively.

In the bond market, treasuries closed modestly higher after rebounding from early weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slipped 1.1 basis points to 3.044 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to reports on weekly jobless claims, personal income and spending and pending home sales as well as the minutes of the Fed's latest monetary policy meeting.