Federal Reserve Chairman Jerome Powell painted a glowing picture of the US economy on Wednesday and hinted that the Fed might consider a pause in rising interest rates next year to gauge the impact of its credit crunch. (November 28)
The stock market, which seemed on the verge of a collapse last week, is once again booming.
What's changed? How did the market mood go from a "get-me-out" mentality to a "that's the right time to go home" mentality?
Here are three reasons why the Dow Jones Industrial Average recorded Wednesday its biggest gain in points since March and its fifth best record in history, recording more than 600 points and ending a three-day race during which it recorded a gain of nearly 1100 points. .
1. Nothing goes down forever
The average blue-chip stock fell by more than 2,500 points, or nearly 10%, from the record high of 26,828 recorded on October 3rd. Some well-known technology stocks, including social media giant Facebook, have suffered losses twice or even three times higher than the Dow's.
The growing list of fears that pushed investors to believe that good US economic conditions, Corporate America and Wall Street were preparing to fall – which according to many Wall Street analysts have pushed stock prices downward more than they probably deserved – in the end.
The main culprits of increasing pessimism? Worrying about the Federal Reserve's interest rate hikes, trade spillovers between the US and China, and slowing global growth, corporate earnings growth would be slowing dramatically and rocketing the economy. economy in recession.
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2. Assess the fears
On Wednesday, a big risk seemed downgraded from a serious red alert state to a lower level concern. In a speech to the New York Economic Club, Federal Reserve Chairman Jerome Powell was seen on Tuesday criticizing Donald Trump, who had raised interest rates too much, in an interview with the New York Economic Club. Washington Post. The bank's rate hike campaign was far from over. This time, Mr. Powell said that the Fed may not have to raise rates further before reaching its long-term goal, or so-called "neutral" rate.
"Interest rates," said Powell, "remain just below" the level indicated by the central bank, which neither accelerates nor slows the economy.
Wall Street praised the language change, interpreting it as a sign that the Fed will likely consider a pause in rising rates after a rate hike expected at its December meeting. Wall Street fears rising borrowing costs will hurt the economy.
"This is a big big change," said Gary Kaltbaum, chairman of Kaltbaum Capital Management, adding that the Fed once again supported Wall Street to "prevent markets from cracking".
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The markets also applaud Powell's comments suggesting there is "no predefined policy" regarding the number of future rate hikes, says Cliff Hodge, chief investment officer of Cornerstone Wealth.
"This contrasts with earlier comments that the hikes were on, fucking torpedoes," Hodge told USA TODAY.
3. Increasing hopes of a commercial truce
The other big surplus in the stock market has been Trump's trade battle with China, the world's second largest economy. Tariffs, which act as a tax on consumers and disrupt product supply chains, have been accused of slowing trade around the world.
But hopes grow for a thaw of the economic war, a sort of truce, when Trump meets Chinese President Xi Jinping at the G20 summit in Argentina this weekend.
Any sign of progress in the negotiations between the two largest economies in the world could lead to more gains in a stock market in ruins in recent weeks.
"If we receive positive news from the G20, the stock will be auctioned," Hodge said.
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