The US S&P 500 and Dow Jones rallied on Tuesday after Powell said rates would remain low and bond purchases would proceed at a rapid pace until “significant further progress” was made.
The attention of economists, market experts and investors was tied to the speech of Fed Chairman Jerome Powell on Tuesday before Congress.
In anticipation of this event, major US stock indices have been declining for the past five consecutive days. On Tuesday, the S&P 500 and Dow Jones closed with gains of 0.13% and 0.05%, respectively, after the S&P 500 fell 1.3% over the past week and the Dow Jones did not show positive momentum.
Technological Nasdaq Composite on Tuesday closed with a decline of 0.5%, although during the trading the drop reached the level below -3.5%, the decline in the index for the week was 4.15%. Analysts attributed this to fears of the Fed raising interest rates, profit-taking and revaluation of the high value of popular technology stocks.
Investors were worried about how the US economy is recovering during the pandemic and what impact unemployment and inflation might have in the near term.
In addition, Republicans of Congress have criticized Joe Biden’s proposed $ 1.9 trillion bill that could help the US economy recover from the COVID-19 crisis faster and recover from the recession.
Speaking to Congress on Tuesday, Powell said the economy remains “far” from targets for employment and inflation, while making the following statements:
interest rates remain at zero level 0% -0.25% until the growth of the US economy fully recovers;
The Fed has overhauled its traditional approach to inflation and unemployment rates – now their numbers are less worrisome, and the key metric is the employment rate.
The Fed will continue to buy corporate bonds at a rapid pace until there is “significant further progress.”
Growing demand for Treasury bonds and increasing yields on 10-year government bonds. bonds by 40 basis points this year speaks of the market confidence in the recovery from the pandemic.
These statements may slightly improve the mood of investors in the stock market.
For example, shares in energy and finance companies, which are showing the highest growth rates this year, continued their gains on Tuesday, as investors buy shares in companies that they believe will benefit from the economic recovery.
The next key event this week will be the House vote on the $ 1.9 trillion economic stimulus bill proposed by Biden’s team.
Discussion of the bill and voting will take place on Friday-Saturday this week. If the bill is passed by the lower house, it will be submitted to the Senate for a vote.
“The declines in popular technology and small-cap stocks can be interpreted as the beginning of market volatility,” said Chris Larkin, managing director of trade and product investment at E-Trade. “This does not mean that the growth of these shares has exhausted itself. It looks more like sectors such as energy and finance are now more attractive, and technology has receded into the background. “