NEW YORK (Reuters) – Wall Street surged in troubled trading Wednesday as investors saw an impending end to ultra-loose U.S. monetary policy as a vote of confidence in the economy, while two-year government bond yields on bets that policy tightening is imminent .
Indeed, the Federal Reserve signaled on Wednesday that it could begin scaling back its support for the US economy from the crisis-era – which will grow as fast as it has for decades this year – by mid-next month, with numbers growing Policy makers are concerned that high inflation may last longer than previously thought.
Overall optimism about economic growth helped the S&P 500 reverse late-day losses and gain 0.30%, while the Nasdaq Composite rose 0.73% and the Dow Jones Industrial Average ended flat.
The pan-European STOXX 600 index rose 0.70% and the MSCI index for equities worldwide rose 0.48%.
Previous figures had shown the US consumer price index rose 0.4% last month, higher than expected 0.3%, as Americans paid more for groceries, rent and a range of other goods, highlighting the challenges of strained supply chains.
While some investors have feared that accelerated inflation, compounded by rising oil prices, could slow economic growth and lead to stagnation, which could lead to “stagflation,” analysts at JPMorgan argued on Wednesday that such fears were “exaggerated “Be.
“Persistent inflation suggests we are staying in a hot economy, which could lead the Fed to act earlier,” Bank of America analysts said in a note.
“Historically, stock markets have done well during times of rising oil prices, especially during times that followed a crisis,” the analysts said. They recommended investors invest more cash in stocks in the energy, materials, industrial and financial sectors compared to other investments.
Bets on a tighter monetary policy flattened the US yield curve.
Two-year government bond yields jumped to 0.394%, a level last seen in March 2020 before falling to 0.36%. The benchmark 10-year yield fell to 1.5403% from 1.58% late Tuesday.
The spread between 10-year and two-year Treasury yields was around 118 basis points, the lowest in over two weeks.
A flatter yield curve weighs on banks’ profitability and weighs on bank stocks.
JPMorgan Chase & Co shares fell 2.6% for the day, despite better-than-expected earnings in the third quarter.
The dollar, which has benefited from betting that tighter US monetary policy would improve its attractiveness as a higher-yielding currency, took a breather on Wednesday.
The dollar index fell 0.42% to 94.033 from a year-long high of 94.563 the previous day. A softer dollar helped the euro rise 0.56% from a nearly 15-month low to $ 1.15945.
The Japanese yen, held at a three-year low against the dollar, also rebounded, rising 0.23% to 113.27 per dollar.
Oil prices, which had fallen sharply, also halted their rally as some investors questioned whether inflation and other supply chain issues will dampen economic growth and ultimately energy demand.
US crude fell 0.15% to $ 80.52 a barrel and Brent was at $ 83.27, down 0.18% from the day.
Gold, usually viewed as an inflation hedge, shone as a softer dollar added to its strength.
Spot gold rose 1.9% to $ 1,792.91 an ounce. US gold futures rose 1.92% to $ 1,792.00 an ounce.
Additional coverage from Alun John in Hong Kong and Sujata Rao in London; Editing by Nick Zieminski and Rosalba O’Brien