The Dow jumped 200 points, the S&P 500 set a record as Powell prepares markets this year to cut Fed bonds


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Traders work on a trading podium on the New York Stock Exchange in New York, United States, on August 19, 2021.

Wang Ying | Xinhua News Agency Getty Images

Shares rose on Friday and kicked off on a winning week as Federal Reserve Chairman Jerome Powell prepared markets for the central bank to withdraw some of its monetary stimulus, saying it was likely to start cutting its $ 120 billion bond purchase this year.

The Dow Jones Industrial Average strengthened 242 points, or 0.5%. The S&P 500 rose 0.6% to reach a record 4,505.16. The Nasdaq Composite added 0.7% to a record of 15,102.70.

The three main stock averages are closed for the week. The Dow was up 0.9% from last week, while the S&P 500 was up 1.4% and the Nasdaq Composite was up 2.5%.

A ten-year treasury yield, which has risen this week Powell’s speech, was slightly mitigated after the remarks of the head of the Fed, because Powell clearly said that the increase in interest rates will not follow immediately after the reduction has decreased.

“The deadlines and pace of the forthcoming reduction in property purchases will not aim to carry a direct signal in terms of the timing of interest rate hikes, for which we have articulated a different and much stricter test,” Powell said.

Powell said inflation is solid around the central bank’s target rate of 2%, which is one of the goals of the Fed’s dual mandate. However, “there is still a lot to cover” to achieve its second maximum employment goal, although “clear progress has been made” accordingly, Powell added.

The reaction of financial markets on Friday is a sign that the central bank has so far successfully prepared investors to remove its $ 120 billion a month in bond purchases and could avoid the “tantrum” that temporarily rocked markets in late 2013. Michael Arone, chief investment strategist for the US SPDR business in State Street Global Advisors said markets look relieved that the Fed is not ready to increase rates any time soon.

“The interest rate increase is far, far away, and investors are happy about it,” he said. “I think Powell deserves some credit for moving in reducing assets, avoiding anger. The market seems to be well prepared for the start of the narrowing.”

Powell’s speech signaled that the Fed is not as nervous about prices as some in the market and in Washington, said Adam Crisafulli, founder of Vital Knowledge.

“Powell spends most of his speech pushing inflation concerns,” he said, adding that he “pushes concerns about raising interest rates, telling markets that the threshold for raising rates is much higher than the reduction.”

Based on statements by other Fed officials, a narrowing announcement could emerge as soon as the Fed meets on September 21 and 22.

Shares of Gapa rose nearly 5% after clothing retail quarterly earnings report won at the top and bottom of the line, while Peloton shares fell after the training company financial results in the fourth quarter missed Wall Street estimates. Peloton fell 7.5%.

Energy supplies were higher, after being among the hardest hit on Thursday. Occidental Petroleum rose nearly 7%, while Diamondback, Devon Energy and Halliburton rose more than 3%.

Three major U.S. indices closed lower trading on Thursday. The Dow broke a four-day winning streak, while the S&P 500 and Nasdaq Composite broke a five-day winning streak.

Market participants also followed new developments in Afghanistan, which seemed to affect investor sentiment. The Pentagon confirmed that on Thursday explosions near the Hamid Karzai International Airport in Afghanistan, 13 members of the American army were killed and 18 were wounded.

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“Markets don’t like uncertainty, and uncertainty in Afghanistan is great and it feels like it’s growing,” said Bob Doll, chief investment officer at Crossmark Global Investments.

Indices are on their way to ending the month higher. The Dow rose 0.8% in August. The S&P 500 is up 1.7% and the Nasdaq Composite is up 1.9% this month.

– Jeff Cox, Patti Domm and Yun Li contributed to this report.

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