Wall Street rallies after Jerome Powell confirms cooling inflation

Wall Street's major indexes closed higher on Wednesday following Federal Reserve chief Jerome Powell's confirmation of cooling inflation.

The S&P 500 — which keeps track of the top 500 American companies — and the tech-leaning NASDAQ posted steep gains in the trading session. The S&P closed at 4,119.21, increasing by 42.61 points or 1.05 percent. Meanwhile, NASDAQ concluded the session at 11,816.32, gaining 231.77 points or two percent.

On Wednesday, the S&P recorded its highest closing point since August 25, 2022. Of 11 sectors in the index, energy was the only one concluding the trading session in the red, falling 1.9 percent. Meanwhile, rate-sensitive tech stocks were the biggest gainers, increasing by 2.3 percent.

Dow Jones was the lowest gainer among major indexes, rising by 6.92 points or 0.02 percent to close at 34,092.96.

The three major indexes had a strong start this year. The S&P and Dow recorded their first January gains since 2019 as investors' confidence in the market was restored following underperformance last year.

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Wall Street's rally tapered off mid-day after the Fed announced it had raised the benchmark interest rate by 25 basis points. The central bank added that "ongoing increases" to the benchmark rates would likely occur.

The stock market, however, regained confidence after Powell addressed the public. The chairman responded to questions concerning easing inflation. Powell also talked about declining bond yields and rising equities.

"He had an opportunity to relay a hawkish message and didn't take it," Edward Jones investment strategist Angelo Kourkafas said, as quoted by Reuters.

"He could've said that markets are getting overly excited and he didn't take the opportunity. Instead he said a lot of tightening has already happened."

Kourkafas added that Powell's acknowledgment of disinflation was a signal that the central bank would likely implement two more rate hikes as a "placeholder."

After Powell's press conference, investors predicted that the terminal interest rate would be achieved in June at 4.892 percent. Earlier, the prediction of the terminal interest rate was 4.92 percent.

Job market remains tight

On Wednesday, the U.S. Labor Department revealed that job openings had hit a five-month high of 11 million last December, signaling a very tight job market despite an economic slowdown and higher rate of layoffs in certain sectors, such as tech.

Although increased job listing is normally good news, the Fed currently aims to push down job openings and loosen the labor market. A shortage of labor leads to wage inflation, making it more difficult for the central bank to slow the pace of inflation.

The hospitality sector was the main contributor to the increase in job openings as it looked to keep up with the Americans' habit of dining out and traveling. Retail businesses and transportation companies also offered more job openings to cater to consumers during the holiday season.

Meanwhile, the number of job openings fell for manufacturing and high-tech sectors. Big tech companies, like Meta and Alphabet, recently announced massive layoffs.

Despite December's finding, the labor market has shown signs of softening. Data showed that the number of new jobs had slowed for five consecutive months because companies did not quickly hire workers.

Economists estimated that the U.S. had added 187,000 new jobs last January, the smallest gain for the job market in over two years. The government will reveal the exact number of new jobs on Friday.

Furthermore, some analysts predicted that the current job openings estimates were exaggerated. Comerica chief economist Bill Adams pointed out that job reports in recent months had sent mixed signals to the market.

According to Adams, the job market ran "incredibly hot" at the beginning of 2022 but has been cooling down since. The mixed signals probably resulted from variants in sectors and geographies.