Stocks Rebound, Treasuries Mixed After Powell: Markets Wrap

Stocks edged higher as Federal Reserve Chair Jerome Powell’s remarks did little to alter bets on another 75-basis-point rate hike during this month’s central bank gathering.

The S&P 500 rebounded from a slide that approached 1% earlier in the day, with banks outperforming tech. Treasury two-year US yields, which are more sensitive to imminent policy decisions, rose alongside the dollar. The 10-year rate was little changed.

Powell said the US central bank will not flinch in its efforts to curb inflation “until the job is done.” “We need to act now, forthrightly, strongly as we have been doing,” he noted Thursday in remarks at the Cato Institute’s monetary policy conference in Washington. “It is very important that inflation expectations remain anchored,” Powell said, adding that “what we hope to achieve is a period of growth below trend,” which will cause the labor market to get back into better balance.

Applications for US unemployment insurance fell for a fourth straight week to the lowest since May, suggesting demand for workers remains healthy despite an uncertain economic outlook. Powell said in a speech last month that the labor market is “clearly out of balance,” as demand for workers far exceeds supply. Mortgage rates in the US climbed for the third week in a row, reaching the highest level since 2008 and squeezing affordability as the US housing slowdown deepens.

Europe’s bonds slid after policy makers delivered an unprecedented interest-rate increase to tackle searing inflation, with the European Central Bank pledging “several” further increases, even as the outlook for economic growth darkens.

US stocks could slide a further 25% if the economy tips into recession, with risks to a sustained equity rally mounting, according to Deutsche Bank AG strategists. With company profits set to drop, valuations still high and recession risks looming, the fundamental picture is challenging, strategists led by Binky Chadha wrote in a note dated Sept. 7. His base-case scenario still sees shares rising by year-end.

Among corporate highlights, GameStop Corp. jumped after the video game retailer announced a partnership with cryptocurrency exchange FTX US. Amylyx Pharmaceuticals Inc. surged as its controversial treatment for amyotrophic lateral sclerosis won the support of a panel of US regulatory advisers. Tesla Inc.’s China operations are back in full swing after an upgrade to its factory in Shanghai and a Covid-19 lockdown in the city slowed production earlier this year.

Some of the main moves in markets:

Stocks