LONDON/WASHINGTON: US stocks bounced back Thursday after data showed the American economy regained momentum, while a hawkish tone from the Federal Reserve drove Treasury yields and the dollar higher.
Wall Street opened the day’s trading on a higher note after a sharp sell-off, spurred by Fed comments suggesting rates may rise more quickly, erased Wednesday’s midday gains.
The Dow Jones Industrial Average rose 1.4% in early trading, while the S&P 500 climbed 1.34% and the Nasdaq Composite added 1.17%.
Markets were boosted by new data out Thursday morning showing the US economy accelerated in the fourth quarter, growing 6.9% — the fastest rate since 1984. In more good news, the Labor Department reported that initial claims for jobless benefits fell during the week ended Jan. 22.
“The fourth quarter, especially the back half, was marked by Omicron somewhat blindsiding investors and consumers, but with GDP coming in strong, it’s encouraging to see the economy took the challenges in stride,” said Mike Loewengart, managing director of investment strategy for E*Trade Financial. “So while all eyes are on the Fed, better-than-expected Q4 growth coupled with a drop in jobless claims adds more wind under a now-hawkish Fed’s wings.”
The MSCI world equity index, which tracks shares in 45 countries, rose 0.49%.
In the first month of 2022, investors have largely shied away from riskier assets as economic and geopolitical concerns have weighed on bullish sentiment.
In its latest policy update on Wednesday, the Fed indicated it was likely to raise US interest rates in March, as widely expected, and reaffirmed plans to end its pandemic-era bond purchases that month before launching a significant reduction in its asset holdings.
But, in a follow-up news conference, Fed Chair Jerome Powell warned that inflation remained above the US central bank’s long-run goal and that supply-chain issues may be more persistent than previously thought.
US stocks open higher as market awaits Fed decision
Fed funds futures showed traders pricing in as many as five rate increases by December, after previously fully pricing for four.
Expectations of Fed tightening sent the policy-sensitive US two-year yield to 1.208%, a level last reached in February 2020. The benchmark 10-year yield slipped to 1.8030% having hit a high of 1.88% on Wednesday.