Market Snapshot: U.S. stocks close higher, with Dow up 250 points, as investors weigh hawkish remarks from Powell, Bullard

What’s driving markets?

U.S. stocks were heading higher Tuesday afternoon as investors digested hawkish remarks from Federal Reserve Chair Jerome Powell and St. Louis Fed President James Bullard about the central bank’s need to cool inflation by potentially embarking on a faster path to higher interest rates.

“The market’s hanging in here pretty well,” considering Russia continues to wage war on Ukraine and the Fed has begun hiking interest rates to combat high inflation, said Scott Wren, senior global market strategist at Wells Fargo Investment Institute, in a phone interview Tuesday. He said that a “really good labor market” and “decent growth” in the U.S. are helping to support equities, while investors seem to expect inflation to decelerate over the next two years or so.

Investors have been focused on monetary policy following Powell’s hawkish remarks in a speech Monday to the National Association for Business Economics and St. Louis Fed President James Bullard’s comments in a Bloomberg Television interview Tuesday morning on his view that the central bank needs to “move aggressively to keep inflation under control.”

Bullard told Bloomberg that 50 basis point moves should definitely be “in the mix” as the Fed moves interest rates higher. He had dissented at last week’s Fed meeting in favor of a 50 basis point hike instead of the 25 basis point increase that policy makers approved.

Powell, in his remarks Monday, opened the door to rate hikes of more than 25 basis points, if needed. Both Fed officials said monetary policy can be tightened and still achieve a “soft landing” for the economy.

Read: Stock-market bets on ‘soft landing’ for the economy may be ‘premature,’ warns Morgan Stanley

“From my perspective,” the probability of a 50 basis point rate hike in May has increased following Powell’s and Bullard’s comments, said Wren.

Treasury yields surged following Powell’s remarks on Monday and were extending their rise Tuesday. The 10-year Treasury note yield BX:TMUBMUSD10Ywas up about 7 basis points at around 2.38% Tuesday afternoon, after jumping Monday to its highest level since May 2019.

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 the note.

The S&P 500 closed Monday about 7% off its record high close of 4,796.56 on Jan. 3, according to Dow Jones Market Data. Wells Fargo Investment Institute recently lowered its forecast for the S&P 500 this year to 4,800 from 5,200, said Wren.

“If you got a view that’s more than 3 or 6 months,” investors might consider buying stocks in recently underperforming sectors, such as technology and communication services, he said. 

UBS’s 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 U.S. senior loans and equity sectors that typically outperform in the current environment, including value stocks and financials.

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

Meanwhile, Russia intensified air and sea attacks across Ukraine, as President Joe Biden encouraged U.S. 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.

Which companies are in focus?

Okta Inc. OKTA, the authentication company, said it was investigating images purporting to show a hack of their internal system, though 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 3.4%.

Alibaba Group Holding Ltd.
BABA,
+11.34%
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. U.S.-listed shares rose 12.4%.

Shares of Nike Inc.
NKE,
+3.08%
climbed 3.3% after the company reported stronger-than-expected earnings and sales Monday.

How are other assets faring?

The ICE U.S. Dollar Index
DXY,
-0.01%,
a measure of the currency against a basket of six major rivals, fell less than 0.1%.

In oil futures, West Texas Intermediate crude for April delivery
CLJ22,
-0.73%
CL.1,
-0.73%
edged up 0.1% to $112.25 a barrel. Gold futures
GCJ22,
-0.31%
GC00,
-0.31%
were trading 0.4% lower at $1,922.30 an ounce.

Bitcoin
BTCUSD,
+3.49%
rose 3.4% to trade near $42,577.

In European equities, the Stoxx Europe 600
SXXP,
+0.85%
closed 0.8% higher while London’s FTSE 100
UKX,
+0.46%
advanced 0.5%.

In Asia, the Shanghai Composite
SHCOMP,
+0.19%
rose 0.2%, the Hang Seng Index
HSI,
+3.15%
jumped 3.1% in Hong Kong and Japan’s Nikkei 225
NIK,
+1.48%
gained 1.5%.

––Steve Goldstein contributed to this report.