S&P 500 at highest closing level since August

The S&P 500 and the Nasdaq closed sharply higher on Wednesday after Federal Reserve chair Jerome Powell acknowledged that inflation was starting to ease, in remarks he made following a quarter-point rate hike by the U.S. central bank.

Wall Street’s major indexes had lost ground immediately after the Fed announced its rate hike decision. Its statement also said “ongoing increases” to rates would be appropriate.

But the indexes bounced off their lows and kept gaining ground soon after Mr. Powell started speaking to reporters with the S&P ending up 1 per cent and the Nasdaq adding 2 per cent. Canada’s TSX ended slightly in the red amid a sharp selloff in the heavily weighted energy sector.

Investors were encouraged by Mr. Powell’s answer to a question about easing financial conditions such as rising equities and falling bond yields in recent months, according to Angelo Kourkafas, investment strategist at Edward Jones, St. Louis, Mo.

“He had an opportunity to relay a hawkish message and didn’t take it. He could’ve said that markets are getting overly excited and he didn’t take the opportunity. Instead he said a lot of tightening has already happened,” said Mr. Kourkafas.

Since Mr. Powell said he could acknowledge for the first time that disinflation had started to happen, investors saw his suggestion that there could be two more rate hikes as a “placeholder” the strategist said.

Investors were mostly focused on the Fed’s path forward, as the size of increase for its first policy meeting of the year was in line with expectations. After the press conference, money markets were betting on a terminal rate of 4.892 per cent in June compared with bets for 4.92 per cent just before the Fed’s statement.

U.S. futures were still pricing in rate cuts this year with the fed funds rate seen at 4.403 per cent by the end of December, the same as before the meeting.

Recent readings have indicated that inflation is easing, with the Fed also looking at data that will determine the resilience of the labor market and the pace of wage growth. But data showed U.S. job openings unexpectedly rose in December ahead of the Labour Department’s comprehensive report on nonfarm payrolls for January due on Friday.

Separate economic data showed U.S. manufacturing contracted further in January as higher rates stifled demand for goods.

The afternoon rally had the S&P 500 registering its highest closing level since Aug. 25.

The S&P/TSX composite index ended down 0.1 per cent after posting its highest closing level in nearly eight months on Tuesday.

The TSX energy sector fell 2.8 per cent as oil settled 3.1 per cent lower at $74.41 a barrel, pressured by U.S. government data showing a big build in inventory.

TC Energy Corp was a drag on the sector. its shares slumped 5.6 per cent after the company raised its cost estimate more than expected for completing its troubled Coastal GasLink project.