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Wall Street surges; U.S. yields fall after Fed's Powell speaks

Published 08/26/2021, 10:18 PM
Updated 08/27/2021, 05:26 PM
© Reuters. FILE PHOTO: An investor looks at an electronic board showing stock information at a brokerage house in Beijing, August 27, 2015. REUTERS/Jason Lee

By Chibuike Oguh

NEW YORK (Reuters) -Wall Street stocks soared while U.S. Treasury yields fell on Friday after Federal Reserve Chair Jerome Powell indicated the U.S. central bank could begin scaling back its bond buying program by year-end but did not give a firm timeline.

Powell's much-anticipated speech was noncommittal on the precise timing of the Fed's bond tapering, unlike earlier remarks by several regional Fed presidents who wanted tapering to start soon.

At the Fed's annual Jackson Hole, Wyoming, conference, Powell expressed caution about raising interest rates as the Fed tries to nurse the economy to full employment and would avoid chasing "transitory" inflation.

Fed Vice Chair Richard Clarida echoed Powell's remarks on Friday, saying he believed that the central bank could begin tapering later this year.

Following Powell's speech, the S&P 500 and the Nasdaq closed at record highs for the fourth time this week driven by stocks in technology, communications, consumer discretionary and financials.

The yield on the benchmark 10-year U.S. Treasury note fell to 1.3104% after Powell's remarks.

"I think markets pretty much anticipated this. The market has been making a new high every single day and week, and it needs low rates to perform," said David Kalis, partner at Future Fund LLC in Chicago.

The MSCI world equity index, which tracks shares in 50 countries, rose 0.72%, while the pan-European STOXX 600 index gained 0.43%.

Overnight in Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.25%, capping its best week since February.

"The Fed is also aware that they can't raise rates aggressively, and inflation does seem transitory as the economy opens up and things get back in gear," Kalis said.

On Wall Street, the Dow Jones Industrial Average rose 0.69% to 35,455.8, the S&P 500 gained 0.88% to 4,509.37 and the Nasdaq Composite added 1.23% to 15,129.50.

The dollar index, which measures the greenback's performance against a basket of six major currencies, fell 0.397% to 92.684.

Gold gained more than 1%.

Spot gold was up 1.44% at $1,817.9490 an ounce. U.S. gold futures rose 1.47% to $1,818.70 an ounce.

© Reuters. FILE PHOTO: A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., July 19, 2021. REUTERS/Andrew Kelly

Oil prices increased more than 2% and were on track for their biggest weekly gains in over a year as energy companies began shutting production in the U.S. Gulf of Mexico ahead of a major hurricane expected to hit early next week.

Brent futures rose 2.3% to settle at $72.70 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 2.0% to settle at $68.74.

Latest comments

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Last week the Fed. Bought $99 billions$ in Bills and Notes that is part of the $ 120. billions$ of the month? Or part of the Debt Limit that was raised by $ 6.5 trillions $?  For the Government not to default on its obligations ? Come on BIDEN, PRINT $ 1000 EVERY MONTH AND MAKE XYZ AND LOST GENERATIONS HAPPY. CHEERS !!!!
Not tapering unless covid gets better and right now it is getting worse.
Powell speech: nothing
he will postpone tapering.
Fed will postpone tapering because it doesn't want to upset Wall Street. Fed doesn't seem to care about the public having higher living expenses.
This is my impression. There is no reason why the Fed shouldn't start scaling back some its asset purchases.  Tapering doesn't mean it ceases entirely.  I don't see what is the big deal. By beginning to taper, the indirect effect would be banks charge more for short-term debt.  One of the reasons our markets have become so inflated is due to institutional investors and hedge funds who have a portion of their portfolios leveraged.  Therefore, you have companies with stock prices that are inflated, i.e., Tesla.  When the bankers charge more, the institutional investors and hedge fund managers are forced to rebalance their portfolios, thus, a sell-off will ensue. Although I believe the Fed's asset purchases were important during the shutdowns for businesses to obtain cheap credit, it is not necessary at this time because too much liquidity drives up inflation.  Therefore, it is apparent that the Fed's asset purchases are more catered to benefit Wall Street, not the American public.
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