U.S. stocks bounce back as investors weigh hawkish Powell remarks, Ukraine war

US stocks rose Tuesday, shaking off a wobble that followed remarks a day earlier by Federal Reserve Chairman Jerome Powell signaling that the central bank could deliver bigger interest rate increases at coming policy meetings in a bid to rein in inflation currently running at a 40 year high .

What’s happening
  • The Dow Jones Industrial Average DJIA
    rose 234 points, or 0.7%, to 34,787.

  • The S&P 500 SPX
    was up 44 points, or 1%, to 4,505.

  • The Nasdaq Composite COMP
    was up 234 points, or 1.7%, to 14,074.

Stocks stumbled Monday after Powell said the central bank could deliver hikes of 50 basis points, or half a percentage point, in future meetings, but ended the day well off session lows. The Dow fell 0.6%, snapping a five-day winning streak, while the S&P 50 finished fractionally lower and the Nasdaq Composite slipped 0.4%.

What’s driving markets

Treasury yields surged following Powell’s remarks on Monday and were extending the rise Tuesday. The 10-year Treasury note yield BX:TMUBMUSD10Ywas at 2,366%, up around 4 basis points after rising to its highest since May 2019 on Monday.

St. Louis Fed President James Bullard, in an interview with Bloomberg Television, said Tuesday morning that 50 basis point moves should definitely be “in the mix” as the Fed moves interest rates higher. Bullard dissented at the Fed’s meeting last week in favor of a 50 basis point hike instead of the 25 basis point move that policy makers approved.

Read: Bullard, Waller back aggressive policy stance

There’s more commentary coming from Federal Reserve officials Tuesday, including New York Fed President John Williams.

Powell’s remarks showed that the Fed is now firmly in inflation-fighting mode, which is bad news for bonds but more nuanced for stocks, said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a note.

“We still see a path to markets ending the year higher. Although there is widespread criticism, it’s too early to take the view that the Fed won’t be able to negotiate the fine line of reducing inflation without derailing growth,” he said, in a note.

Haefele said amid the high degree of uncertainty, UBS prefers selected overweight and underweight positions, yielding an overall neutral allocation to equities. Investors should brace for higher interest rates, considering exposure to US senior loans and equity sectors that typically outperform in the current environment, including value stocks and financials.

Meanwhile, Russia intensified air and sea attacks across Ukraine encouraged, as President Joe Biden US companies to harden their cyber defenses against Russia.

“Fed policy is about to become restrictive and commodity market tightness will still remain even if there is a quick resolution to the crisis in Ukraine,” said Edward Moya, senior market analyst for the Americas at Oanda.

“The impact from this war is anyone’s guess, but what we do know is that the longer it lasts, the greater the stagflation risk will be for the global economy,” he added.

Companies in focus
  • Okta Inc. OKTA, the authentication company, said it was investigating images purporting to show a hack of their internal system, although the hacking group is believed to be based in Brazil. In a tweet, Okta CEO Todd McKinnon said there was no evidence to date of ongoing malicious activity, Barrons’ reported. Shares fell by 1.5%.

  • Alibaba Group Holding Ltd.
    BABYSITTER
    announced late Monday that it was boosting the size of its share-buyback program, with the Chinese e-commerce giant is authorizing repurchases of as much as $25 billion in shares, up from $15 billion. US-listed shares rose 11.6%.

  • shares of Nike Inc.
    NKE
    rose 4.1% after the company reported stronger-than-expected earnings and sales Monday.

other assets
  • The ICE US Dollar Index DXY,
    the measure of the currency against a basket of six major rivals, fell 0.1%.

  • Oil futures rose, with the US benchmark CL
    down 1.3% to around $108.50 a barrel, while gold futures GC00
    fell 0.5% to trade near $1,920 an ounce.

  • Bitcoin BTCUSD
    rose 3.9% to trade near $42,700.

  • The Stoxx Europe 600 XX:SXXP
    rose 0.8% and London’s FTSE 100 UK:UKX
    advanced 0.4%.

  • The Shanghai Composite CN:SHCOMP
    rose 0.2%, while the Hang Seng Index HK:HSI
    jumped 3.1% in Hong Kong and Japan’s Nikkei 225 JP:NIK
    gained 1.5%.

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