Indexes Surge 3% After Powell Rejects Larger Rate Increases In Future

Barry Adams
04 May, 2022
New York City

U.S. stocks rallied after the Fed announced a widely expected rate hike of 0.5% and a plan to reduce the portfolio of government debt beginning next month. 

The benchmark indexes rose sharply after the Fed Chairman Jerome Powell quashed the possibilities of larger rate hikes of 75 basis points. 

The S&P 500 index jumped 3% to 4,300.17 and the Nasdaq Composite index added 3.2% to 12,964,86. 

The Fed plans to let some of the maturing bonds roll-off and adjust the amount reinvested in government securities. 

The Fed plans to let $30 billion of U.S. Treasury bonds and $17.5 billion of mortgage securities roll off for the next three months and then increase the cap to $60 billion a month. 

At the proposed rate of caps, the Fed will shrink its portfolio by less than 10% over a year, if the plan is executed every month. 

The 50 basis points is the largest increase that the policy committee has approved since May 2000 when the rates were increased to 6.5% after the collapse of internet stocks and dot com bubble. 

In other economic news, U.S. trade deficit surged to a record high $109.8 billion in March from a revised $89.8 billion in February. 

Imports in the month soared 10.3% to $351.5 billion and exports rose 5.6% to $241.7 billion. 

Earnings were in focus also after AMD reported a surge in quarterly revenues and lifted the 2022 outlook, CVS earnings were ahead of expectations, and Airbnb said bookings have crossed pre-pandemic levels.  

Stocks have rebounded for the second day in a row after the Nasdaq index lost the most since 2008 in April and the S&P 500's decline was the worst since March 2020 in the month. 

In Europe, the DAX index fell 0.5%, and the FTSE 100 index dropped 0.9% and the CAC-40 index declined 1.3%. 

The European Union proposed a ban on Russian oil imports and is working to prepare sanctions on Russian military officials accused of war crimes.

Eurozone private sector activities rose to the highest level in seven months in April on the strength in the service sector. The economic activities are roaring back on the easing of pandemic related restrictions. 

The S&P Global composite output index increased to 55.8 in April, the most since September 2021 and the services Purchasing Managers' Index increased to an eight-month high of 57.7 in April from 55.6 in March.

Activities in France picked up at the fastest pace in April since the start of 2018 and in Italy the activities rose for the fifteenth month in a row. 

Volkswagen AG posted higher quarterly profit and said vehicle deliveries are expected to increase between 5% and 10% and said semiconductor supplies are expected to improve in the second-half. 

First quarter earnings surged to 6.56 billion euros or 13.05 euros per share from 3.24 billion euros or 6.45 euros per share in the previous year.

In Asia, markets in Japan were closed for Greenery Day holiday, China for Labor Day, and Indonesia and Malaysia for Eid celebration. 

The benchmark index in Hong Kong fell 1% and in Taiwan gained 0.4%. Market indexes in South Korea, New Zealand, and Singapore closed nearly unchanged. 

Stocks in Mumbai plunged after the Reserve Bank of India announced a rate hike in a surprise move citing acute inflationary pressures. 

The Sensex index declined 1,306.96 or 2.3% to 55,669.03 and the Nifty index fell 391.50 or 2.3% to 16,677.60. 

The Reserve Bank of India increased repo rate 40 basis points to 4.4% and cash reserve ratio by 50 basis points to 4.5% from May 21.