Dow closes more than 400 points higher, Nasdaq plummets 7-day slide as Wall Street shrugs off rate hike concerns

Stocks rose on Wednesday, trying to shake off a three-week slide as interest rates and oil prices eased, cooling investors’ concerns about persistently high inflation.

The Dow Jones Industrial Average gained 435.98 points, or 1.40%, to end the day at 31,581.28. The S&P 500 rose 1.83% to 3,979.87. The Nasdaq Composite rose 2.14% to 11,791.90, breaking a seven-day losing streak.

US Treasury yields fell after jumping on Tuesday. Oil prices plummeted, with West Texas Intermediate crude settling at $81.94 a barrel — the lowest close since January. The British pound hit its lowest level against the US dollar since 1985.

Stocks rallied as Fed Vice Chair Lael Brainard reiterated that the central bank would do whatever it takes to dampen inflation while citing the risks of going too far. Many traders chose to focus on this last point of their speech.

“At some point in the tightening cycle, the risks become more two-sided,” Brainard said. “The speed of the tightening cycle and its global nature, as well as uncertainty about how quickly the impact of tighter financial conditions will feed through to aggregate demand, creates risks associated with over-tightening.”

The moves higher reversed an earlier dip into negative territory in futures trading. Stock futures slumped after an article in the Wall Street Journal suggested that Federal Reserve Chair Jerome Powell’s commitment to lower inflation could see the central bank cut interest rates by 0.75 percentage point in September increases, which would be the third consecutive increase of this magnitude.

Markets have been hoping that the Fed would start smaller hikes starting in September, but at some point in the day they were pricing in an 86 percent chance of a 0.75 percentage point hike.

On Wednesday, the Federal Reserve released its summary of current economic conditions called the Beige Book. The report showed that economic activity was little changed in many regions of the US and that growth prospects remain weak.

Stocks have struggled of late as government bond yields trade around their highest levels since June. Additionally, September was historically the toughest month for the market. All eyes are on the S&P 500’s 3,900 mark. Some see the index falling to even lower lows, while others are bullish on a year-end rally.

“If stocks retrace the June lows and the interest rate path resets higher, a further decline in inflation combined with decisive intervention by the EU government to deal with the energy crisis could result in further bear pressure,” Barclays’ Emmanuel Cau wrote in a statement dated Wednesday. “Big picture, we think equities remain in a tough spot amid a poor trade-off between growth policy and growth policy.”

Lea la cobertura del mercado de hoy en español aquí.

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