Equity Markets Rally After Jay Powell Speech, Dow Tops 33,000

18 Mar 2021 · 3rd Party Analysis

Equity Markets Rally After Jay Powell Speech, Dow Tops 33,000


In Summary

  • Dow Jones breaks another milestone, surges past 33,000
  • Jerome Powell reiterates the Fed will maintain monetary support

The 30-stock blue-chip Dow Jones Industrial Average Index topped 33,000 for the first time in history yesterday. The milestone of 33,015.37 was reached following Federal Reserve Chairman Jerome Powell’s press conference at the end of the two-day Federal Open Market Committee meeting. Apart from the all-time high of the Dow, the S&P500 and the Nasdaq Composite also moved to the upside. The S&P500 climbed 0.29% to close at 3,974.12, while the Nasdaq Composite rose by 0.40% and ended the session at 13,525.20.

Dow Jones scored its fastest 1000-point move since its inception in 1896. By ending the session up 189.42 points, or a gain of 0.58%, the index raced from 32,000 to 33,000 in just five trading days. The afternoon rally on Wednesday as a result of Jerome Powell’s remarks on the economy, the path to recovery, and the Fed’s forecasts for the years ahead.

The Federal Reserve announced it will maintain the ultra-loose monetary policy and keep interest rates near zero at least until 2024, the time around which the Fed expects to meet its goals that include a complete economic recovery, sustained positive market environment, stable inflation rate, and maximum employment. Following the release of the FOMC statement, Jerome Powell appeared in an online press conference. Chairman Powell discussed wide-ranging economic topics from GDP projections to asset purchases.

Fed Chairman Powell Expresses Commitment to Support the Economy

Fed Chair Jerome Powell raised the GDP forecast for the year from 4.2% to 6.5%. The unemployment rate was lowered from 5% to 4.5%. The inflation rate is projected to reach 2.2% in 2021 but fall back to the central bank’s target of 2% in 2022. The interest rate will be maintained at 0.25% and the Fed will keep buying $120bn per month worth of bonds until “substantial further progress” has been made.

“We will continue to provide the economy the support that it needs for as long as it takes”, said Mr. Powell. The Fed remains committed to allowing the economy to run hot before leaning against it. The measures taken by the central bank “will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.”

Investors were in favor of the Fed’s dovish stance and the recommitted effort to continue boosting the economy only added fuel to the already-bullish equities. The Dow had been on a tear days before the meeting as the massive vaccination program and the $1.9tn stimulus package boosted investors’ hopes for the imminent reopening of the economy across the states. Once the economy is largely active, investors expect a rise in real-economy sectors that rely on consumer spending such as banking, hospitality industry, airlines.

The S&P500 also set a record with its Wednesday’s close while the tech-focused Nasdaq Composite remains some 5% below its all-time high near the 14,000 marks. US stock futures point to the upside in premarket trading on Thursday as investors keep their optimism over a quick recovery from the pandemic on the back of an improved economic outlook.

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