Stocks are pushing further into record heights on Wall Street Thursday after the Federal Reserve made a major overhaul to its strategy, one that could keep interest rates lower for longer.
The S&P 500 was up 0.4% in afternoon trading, and longer-term yields were also climbing, with momentum swinging higher after a jumbled start to trading. Markets initially made several U-turns after Fed Chair Jerome Powell gave a highly anticipated speech, where he essentially said the Fed may continue efforts to prop up the economy even if inflation rises above its target level of 2%, as long as it had been weak before then.
The change in the Fed's strategy is a huge deal for markets because the central bank has been the superhero repeatedly rescuing them from crises through the years, by slashing short-term interest rates and buying all kinds of bonds.
The Dow Jones Industrial Average was up 213 points, or 0.8%, at 28,545, as of 12:15 p.m. Eastern time, and the Nasdaq composite was up 0.2%.
The benchmark S&P 500 is coming off a five-day winning streak and has returned to a record level after the immense support of the Fed helped halt its free-fall earlier this year and erase its pandemic losses. Low rates often act like steroids for stocks, allowing their prices to rise faster than corporate profits.
“The era of easy money is here,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial.
Treasury yields fell immediately after Powell began talking, but then started bouncing up and down. The yield of the 10-year Treasury was at 0.74%, up from 0.68% late Wednesday. The 30-year yield climbed to 1.48% from 1.41%.
Shorter-term Treasury yields were more subdued, with the two-year yield ticking up to 0.15% from 0.14%, and the widening gap between short- and longer-term yields could be an indication of higher expectations for the economy or inflation among investors.
Gold was down 0.8% at $1,936.40 per ounce after initially spiking as high as $1,987.00 after Powell began talking. It mirrored the movements of the 10-year Treasury yield. Lower yields can drive demand for gold from investors seeking safety but not interested in the lower interest payments coming from bonds.
Earlier in the morning, a report showed the pace of layoffs sweeping the country remains incredibly high but may be slowing. A little more than 1 million U.S. workers applied for unemployment benefits last week, which was a dip from the slightly more than 1.1 million the prior week.
In another report, the government also said that the economy looks like it shrank at an annual rate of 31.7% in the spring quarter. That would be the sharpest quarterly drop on record, but it’s not as bad as the Commerce Department’s earlier estimate of 32.9%.
Abbott Laboratories jumped 7.4% for one of the biggest gains in the S&P 500 after federal regulators gave emergency use authorization for its COVID-19 test, which can provide results in 15 minutes and will cost only $5.
Stocks of companies that sorely need people feeling comfortable enough with the pandemic to get back to “normal” life were also strong. Live Nation Entertainment rose 9.9%, Norwegian Cruise Line was up 7.2% and United Airlines rallied 6.5%.
Financial stocks had the biggest gain among the 11 sectors that make up the S&P 500, up 1.7%. A higher 10-year Treasury yield allows for higher rates on mortgages and other loans, which boosts profits for banks. JPMorgan Chase gained 3%, and Wells Fargo rose 2.1%.
In European stock markets, the German DAX lost 0.7%, and France's CAC 40 slipped 0.6%. The FTSE 100 in London was down 0.8%.
In Asia, Japan's Nikkei 225 slipped 0.4%, and South Korea's Kospi lost 1%. The Hang Seng in Hong Kong fell 0.8%, and stocks in Shanghai rose 0.6%.
Benchmark U.S. crude oil fell 0.9% to $43.00 per barrel. Brent crude, the international standard, lost 0.8% to $45.80 per barrel.