Powell Sends Market Soaring To End Month

The stock market opened to gloomy job numbers on Wednesday before ending the month with a rocketing rally.

Unimpressive numbers reported before the opening bell by Automatic Data Processing (ADP) showed that the national employment came in lower than expected. This report was anticipated to be lower than the previous, but when data revealed a significant miss on the forecast, the market reacted negatively.

That negative sentiment blanketed Wall Street and held the market down for most of the day.

This pre-market trend continued as equities found little reason to go higher. Smaller economic events, such as the Chicago Purchasing Managers Index (PMI) and the Job Openings and Labor Turnover Survey (JOLTS) provided no shift in the session structure.

The combination of neutral or weak reports and anticipation of Federal Reserve (Fed) Chairman Jerome Powell speaking later in the session, the market continued to grind lower slowly.

About an hour before Powell’s speech, the market found some support by creating a double bottom. Often the market will slightly correct itself so that it is not overly extended in a particular direction before a significant catalyst such as Powell at the podium.  

Powell provides positive push

After Powell took the mic at 1:30 p.m. Eastern, the market exploded on his comments.

Powell, speaking at the Brookings Institution, explained several statements that sent the market higher one sentence after another. Powell propelled the market by stating that the Fed could slow the pace of benchmark interest rate increases as soon as the December Federal Open Market Committee (FOMC) meeting. This comment was music to Wall Street’s ears as indices and individual stocks started to explode.

Whether the market reaction will prove premature is yet to be seen since any final rate decision will be finalized in December. If the Fed reverses course on this statement, the market reaction could be detrimental. 

Powell said he “does not want to crash the economy.” This statement alone created a bullish reaction, but even deeper than that, it indicates that the Fed is determined not to go back on its word of lowering rates in December. The correlation between the two is that he claimed he does not want to crash the economy, and he knows that if they were to pivot from that statement and not slow the pace in December, he would effectively hurt the market. 

Powell’s speech may indicate the Fed is prepared for a “soft landing” in the economy as it tries to curb inflation. This shows that the Fed plans to slow the rate hike and draw it out over an extended period rather than further shocking the economy and the stock market. There could be ramifications for extending this process seen in the economy, but as far as the market is concerned, this has been a positive catalyst. 

Market makes big gains on Powell speech

The Nasdaq and the S&P 500 were positive to close the session. The S&P 500 closed up 3.01%, gaining 119 points, while the Nasdaq closed up 4.25%, an increase of 466 points. The Dow Jones followed, closing up 1,94%, adding 656 points.