Stocks rallied on Friday as dovish comments from Federal Reserve Chairman Jerome Powell confirmed expectations that the central bank will cut its benchmark interest rate in September.
The Dow Jones Industrial Average rose 462.30 points, or 1.1%, to 41,175.08, just 23 points below its previous high. The S&P 500 gained 1.2% and the Nasdaq climbed 1.5%. All three indexes rose more than 1% for the week.
In a highly anticipated speech to the Jackson Hole Economic Symposium, Powell said “it is time” for the Fed to cut interest rates and “upside risks to inflation have receded.”
“We do not see or welcome any further deterioration in labor market conditions,” Powell added in a speech that virtually guaranteed a rate cut at next month’s monetary policy meeting, the first such cut in more than four years.
“It’s a dovish Powell today, and we’re seeing markets react accordingly,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “He’s suggesting here that if the labor market continues to weaken, we should expect a 50 basis point rate cut in September, rather than 25.”
All three major stock indices extended their gains following the release of Powell’s prepared remarks, with megacaps Nvidia, Apple and Tesla providing the most momentum.
The outperformers were small caps and regional banks.
“We are seeing a slight recovery after yesterday’s decline,” said Jay Hatfield, portfolio manager at InfraCap in New York. “We are seeing the recovery you would expect from interest rate-sensitive stocks.”
Next week, the data-dependent Fed must consider a slew of economic indicators before its September interest rate decision, including the Commerce Department’s revised second-quarter GDP and its comprehensive personal consumption expenditures (PCE) report, which includes the Fed’s preferred inflation measure, the PCE price index.
Of the 11 major sectors in the S&P 500, all except consumer goods were up. Real estate stocks recorded the largest percentage increase.
Workday beat revenue expectations for the quarter and announced a $1 billion share buyback plan, sending shares of the human resources software company up 12%, the biggest percentage gainer on the Nasdaq.
Ross Stores rose nearly 2% after the discounter raised its earnings forecast for fiscal 2024.
Turbo Tax’s parent company, Intuit, fell 6.8% in response to disappointing quarterly earnings.
