US stocks edge higher as Fed suggests slowdown in interest-rate increases

New York — US stocks pushed mostly higher as some investors took Federal Reserve chairman Jerome Powell’s comments to suggest that the central bank is willing to slow down the pace of interest-rate increases if needed.

The dollar remained higher and US treasuries were little changed after Powell said the Fed will continue to gradually raise interest rates “for now” to keep inflation near target amid a strong US labour market. Technology shares had started the day lower after disappointing subscriber growth at Netflix weighed on the rest of the FAANG (Facebook, Apple, Amazon, Netflix and Google stocks). The S&P 500 and the Dow Jones Industrial Average turned green.

“The concern is as interest rates rise, what has been a market that’s stretched the bounds of valuation is going to have to be repriced to reflect higher rates,” Michael Arone, chief investment strategist at State Street Global Advisors, said in an interview at Bloomberg’s New York headquarters. “Any time there’s relief to that, folks are applauding the fact that valuations can stay a bit elevated for longer.”

Earnings and US monetary policy have become the main drivers of market sentiment this week. These have been giving respite from a backdrop of worsening trade relations between the world’s biggest economic powers. Company results have been mixed thus far, with Deutsche Bank and Bank of America beating estimates, counterbalancing the Netflix reading.

“The ability of Netflix to bounce off its opening lows, and Amazon to do the same, has given investor’s confidence that the big momentum stocks are not suddenly going to fall out of bed,” said Matt Maley, equity strategist at Miller Tabak. “The other thing is chairman Powell did not say anything that was overly hawkish in his opening statement.”

Powell addressed Congress with the underpinnings of the US expansion looking solid. Unemployment stands close to an 18-year low and inflation is around the Fed’s 2% target, though some sentiment indicators are starting to flash warning signs over escalating trade disputes. He will appear before the House financial services committee on Wednesday.

Commodities climbed after falling to the lowest in 11 months on Monday as crude traded in New York steadied at about $68 a barrel. Emerging-market stocks headed lower for a second day. The New Zealand dollar jumped after the central bank’s core inflation measure accelerated at the fastest pace in seven years.

With assistance from Eddie van der Walt and David Wilson

Bloomberg