Market Update: Stocks Rise and Bond Yields Fall

(Bloomberg) — Stocks experienced a notable increase and bond yields decreased following reassuring remarks from Jerome Powell, which alleviated investor anxiety over tariffs and indicated that the Federal Reserve does not anticipate the need for significant interventions amid Donald Trump’s trade disputes.

After central bankers maintained existing monetary policies, Powell delivered a balanced evaluation of the potential economic effects from the president’s policies, suggesting that any inflationary impacts from tariffs could be “transitory.” This marked the most considerable stock surge on a Fed announcement day since July, occurring after the S&P 500 had endured a challenging four weeks that pushed it into correction territory. Meanwhile, Treasury yields saw a sharp decline, with the two-year yield falling below 4%.

Christian Hoffmann at Thornburg Investment Management remarked, “Get ready to print T-shirts: ‘Transitory: We are so back!’” He noted that the market would interpret these comments as slightly dovish, indicating that the Fed is not overly worried about economic conditions or inflation. As a result, both stocks and bonds responded positively.

Powell navigated a tumultuous period of cross-asset volatility by reassuring stock investors with remarks that recession risks were “not high,” which calmed their concerns. The Fed’s decision to lower growth forecasts also energized the bond market, aligning traders with the Fed’s outlook on potential rate cuts for the year.

Bill Dudley, former president of the New York Fed, commented on Bloomberg Television that Powell’s performance was reassuring, conveying a sentiment of, “We can afford to wait and assess how things evolve.” He emphasized that the situation appeared manageable.

Starting in April, the Fed will also reduce the pace at which it shrinks its balance sheet, decreasing the monthly roll-off of its bond holdings. Jamie Cox at Harris Financial Group highlighted that the Fed’s actions effectively amounted to an indirect rate cut, setting the stage for potential elimination of runoff by summer, while hoping that inflation data supports a future reduction in the Federal Funds rate.

In the market, the S&P 500 increased by 1.1%, the Nasdaq 100 climbed by 1.3%, and the Dow Jones Industrial Average rose by 0.9%. Major firms like Nvidia Corp. and Tesla Inc. led these gains, while Boeing Co. saw a rise after reporting smaller-than-expected cash outflows for the quarter.