Fed Chair Powell successfully communicated to markets without spooking stocks.
Mark Wilson/Getty Images
Recent stock market risks have faded for the moment, with the Dow Jones Industrial Average rising more than 500 points and looking set for a second consecutive gain. The Chinese central bank has injected more cash into the banking system and the Federal Reserve said nothing outside of expectations Wednesday afternoon.
The Dow gained 574 points, or 1.7% after the index rallied 338 points Wednesday to close at 34,258. The S&P 500 rose 1.4% and the Nasdaq Composite advanced 1.1%.
“The market responded well to yesterday’s Fed outcome, and has taken concerns of contagion from China’s real estate issues in stride,” writes Mike Loewengart, managing director of investment strategy at ETrade.
Although China Evergrande Group (ticker: EGRNF) may be in trouble, markets are unconcerned about ripple effects. The People’s Bank of China has injected another $17 billion into the banking system after putting in $13 billion earlier this week.
The injection helps shore up the Chinese banking system, while U.S. banks are also not highly exposed to credit risk in China. Wells Fargo analysts say none of the major U.S. banks have more than 1.5% of their assets tied to Chinese cross-border deals.
“The contagion risk is gone,” writes Tom Essaye, founder of Sevens Report Research.
Evergrande stock rose 17.6% in Hong Kong—but remains down 81% year-to-date.
As for the Fed, Chairman Jerome Powell made no indication Wednesday that the central bank will reduce monthly bond purchases by any more than the currently expected $15 billion. If the Fed moves faster than that, it could reduce the price of long-dated bonds more than expected, raising the yield, which makes future profits less valuable. For now, markets expect a gradual reduction in the bond buying program.
“Powell continues to walk the line between guiding the market to expect tightening without unduly worrying investors,” said Neil Wilson, an analyst at broker Markets.com.
The 10-year Treasury yield has advanced to 1.4% from a 1.32% level at Wednesday’s close, though it’s still below its 2021 high of 1.75%.
While weekly jobless claims rose slightly to 351,000, above expectations for a decline to 320,000, the four-week average remains near its lowest level of the pandemic.
Overall, the market’s two-day rise has felt like a convincing one. The S&P 500 is up more than 3% from its lowest point this week, with the vast majority of the index’s stocks participating in Thursday’s rally. The index has also returned to trading above its 50-day moving average, a key technical level. Also, the two trading days leading into Thursday saw moments during which New York Stock Exchange rising stocks were outpacing decliners by more than 1,500. The last time that happened this year, it came after a brief pullback and then stocks performed well in the following two weeks, according to Instinet.
Here are 8 stocks on the move Thursday:
Hydrogen fuel cell developer Plug Power (PLUG) rose 2.1%, extending gains from Wednesday, amid a report from Reuters that German automobile makers were betting on a hydrogen-powered future.
Dell Technologies (DELL) gained 4.7% after the company said it saw 3% to 4% compounded annual revenue growth through fiscal 2026.
BlackBerry (BB) jumped 13.9% after reporting a loss of 6 cents a share, beating forecasts for a loss of 7 cents, on sales of $175 million, ahead of expectations for $168.8 million.
Darden Restaurants (DRI) has risen 6.5% after reporting a profit of $1.76 a share, beating forecasts for $1.65 a share, on sales of $2.31 billion, beating expectations for $2.24 billion.
Roku (ROKU) advanced 3.5% after getting upgraded to Buy from Neutral at Guggenheim.
Salesforce (CRM) was up 6.6% after raising its full-year sales guidance.
General Dynamics (GD) advanced 2% and Northrop Grumman (NOC) ticked up 0.9% after the stocks were upgraded to Neutral from Sell at Goldman Sachs.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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