Market Snapshot: Dow, S&P 500 bounce after Powell says Fed isn’t trying to provoke recession with higher interest rates

How are stock indexes trading?

• The Dow Jones Industrial Average DJIA, +0.48% gained 140 points, or 0.5% to trade around 30,670, after flipping between small gains and losses.
• The S&P 500 SPX, +0.63% rose 22 points, or 0.6% to around 3,787.
• The Nasdaq Composite Index COMP, +0.74% was up 85 points, or 0.8% to around 11,155.

Following a long holiday weekend, the Dow Jones Industrial Average  DJIA, +0.48% rallied 641.47 points, or 2.2%, to finish at 30,530.25 on Tuesday. The S&P 500  SPX, +0.63% rose 2.5% to 3,764.79, and the Nasdaq Composite  COMP, +0.74% climbed 2.5%, to finish at 11,069.30.

With the Dow’s roughly 15.9% decline so far in 2022 it was on pace for its worst first-half to a year since 1962 when it fell 23.2% in six months, according to Dow Jones Market Data.

What’s driving the market?

Investors were facing stinging losses in the year’s first half and weighing comments from Fed Chairman Powell who vowed on Wednesday to bring down inflation through additional interest rate hikes, while testifying on Capitol Hill.

“The American economy is very strong and well positioned to handle tighter monetary policy,” Powell said, in remarks to a Senate Banking Committee hearing.

Powell also said that a recession was “certainly a possibility,” but not the intended consequence of monetary policy moves.

See: Powell says U.S. economy can handle the additional rate hikes that are coming

“Powell assured markets he will do everything he can to get inflation back down,” said Peter Cardillo, chief market economist at Spartan Capital Securities, by phone. “And it comes at a price. That price is a potential recession.”

Despite the Fed’s warning, stocks were higher with the market already “discounting inflation, a recession and a very bleak economic scenario,” Cardillo said, adding that he expects stocks to stay in the current trading range until fresh corporate earnings reports emerge in about 15 days, giving investors a better picture of how American businesses are holding up with costs of living at a 40-year high.

“Nothing really new or groundbreaking was communicated in his [Powell’s] statements and his testimony. And that is an incremental positive in that it just removes the overhanging concern that he’s growing increasingly hawkish with every meeting, which is not really rational,” Keith Buchanan, senior portfolio manager at GLOBALT Investments, said in an interview.

Sen. Elizabeth Warren, a Democrat from Massachusetts, warned Powell on Wednesday not to make things worse for families. “Inflation is like an illness, and medicine needs to be tailored to the specific problem,” she said. “You could actually tip the economy into a recession.”

Chicago Fed President Charles Evans said on Wednesday that he backs raising the fed fund rate target to a range of 3.25% to 3.5% this year, and to 3.8% by the end of 2023, as the Fed looks to battle inflation.

While stocks were higher, money was flowing into traditional havens such as bonds. The yield on the 10-year Treasury note TMUBMUSD10Y, 3.155% fell 14 basis points to 3.16%, a day after its biggest jump in seven days. U.S. crude oil prices CL00, -3.41% dropped 3% to settle at $106.91 a barrel.

Stocks briefly rose to session highs after President Joe Biden on Wednesday called on Congress to suspend the federal gasoline tax for three months, while also asking states to provide similar relief and for the U.S. to ramp up its refinery activity.

The federal government charges an 18 cent tax per gallon of gasoline and a 24 cent tax per gallon of diesel. A “gasoline tax holiday, while supporting consumers, would support demand, thereby prolong the period of tightness,” said Ole Hansen, head of commodity strategy at Saxo Bank, in a note to clients.

Which companies are in focus?

• Altria Group Inc. MO, -8.87% shares were9.3% lower after a report that the Food and Drug Administration is preparing to order Juul Labs Inc. to take its e-cigarettes off the U.S. market.
• Revlon Inc. REV, +45.21% shares were up about 49% Wednesday, continuing their recent “meme”-like rocket ride higher, with retail investors driving a buying frenzy in shares of the embattled cosmetics and hair-care company.
• Chef’s Warehouse Inc. CHEF, +4.73%   shares rose 4.5% Wednesday after it raised its full-year guidance. The North American specialty foods provider expects sales in the range of $2.325 billion to $2.425 billion, up from a range of $2.13 billion to $2.23 billion previously.
• Shares of Athira Pharma Inc.  ATHA, -65.92% plunged 66% Wednesday after the company said an exploratory Phase 2 study assessing its experimental treatment for patients with mild-to-moderate Alzheimer’s disease did not meet the primary endpoint. 
• Dow Inc. DOW, -4.48% shares sank 4.6% Wednesday after nearing their lowest level seen since early 2021, after Credit Suisse analyst John Roberts recommended investors sell, citing concerns the specialty chemicals company is likely to be hurt as supply chains normalize.

How are other assets trading?

• The ICE U.S. Dollar Index  DXY, -0.24%,  a measure of the currency against a basket of six major rivals, went down 0.3%.
• Gold futures  GC00, +0.03%  fell less than 0.1% to settle at $1,838.40 an ounce.
• The Stoxx Europe 600  SXXP, -0.70%  fell 0.7% while London’s FTSE 100  UKX, -0.88%  declined 0.9%.
• The Shanghai Composite  SHCOMP, -1.20% fell 1.2%, while the Hang Seng Index HSI, -2.56%  HSI, -2.56% dropped 2.6% and Japan’s Nikkei 225  NIK, -0.37% slipped 0.4%.

—Barbara Kollmeyer contributed reporting to this article