Dow ends nearly 200 points higher after Powell concludes Capitol Hill testimony with vow to battle inflation

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 US 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 BX: TMUBMUSD10Y
down to 3.068% from as high as 3.48% earlier this month. Falling yields can help long-term assets such as technology stocks and bitcoin BTCUSD,
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 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 second half of the year.

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 US’s red-hot labor market is finally starting to cool.

US 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 US 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 US 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
  shares rose 1.6% after executives confirmed ads are coming to the streaming service.

• Walmart Inc. WMT
  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
  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
  shares rose 2.4%, despite the FDA ordering Juul e-cigarettes to be banned in the US market.

• Boxed BOXD,
  the online wholesale retailer, saw its shares fall 17.9%.

• Occidental Petroleum OXY
  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
  for August delivery shed 1.8% to settle at $ 104.27 a barrel, the lowest since May 10, according to FactSet.

• The ICE US Dollar Index DXY
  was up 0.2%.

• The Europe STOXX 600 fell 0.8%, while the FTSE 100 shed 1%.

• The Shanghai Composite CN: SHCOMP
  gained 1.6%, while Hong Kong’s Hang Seng Index HSI00
  rose 1.3% and Japan’s Nikkei 225 JP: NIK
  climbed 0.1%.

—Steve Goldstein contributed reporting