The S&P 500 and Nasdaq closed at record highs Friday, as Federal Reserve Chairman Jerome Powell signaled the taper is likely to be gradual, and rate hikes aren't likely to follow soon after as the economy still has a lot of ground to cover.
The S&P 500 rose 0.9%, to remain close to its earlier intraday record of 4,512.03. The Dow Jones Industrial Average gained 0.69%, or 242 points, the Nasdaq climbed 1.2%, after hitting an intraday record of 15,136.8.
The Fed chief said he had backed plans at the July meeting for the Fed to taper this year if the economy continued its recovery.
“At the FOMC's recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” Powell said.
But Powell didn’t provide fresh clues on a timeline to taper, prompting some to suggest that the Fed may hold off announcing its plans to taper until the November meeting rather than the September meeting.
“Our base case is a November tapering announcement, with the first $15bn reduction effective Dec 1,” Jefferies (NYSE:JEF) said in a note.
The central bank chair was also quick to point out that the beginning of tapering shouldn’t be viewed as a trigger that rate hikes would soon follow.
The test for tightening is “substantially more stringent,” Powell said.
“Federal Reserve Chair Powell engineered a soft taper form of guidance that markets interpreted dovishly,” Scotiabank said in a note.
Cyclical sectors of the market, those that tend to move in tandem with the economy, led the move higher, with energy stocks among the top gainers.
Energy stocks were up 3%, supported by a bid in oil prices amid expectations for output disruptions as Tropical Storm Ida is expected to make landfall on Sunday as a major hurricane near Louisiana.
On the earnings front, Peloton Interactive (NASDAQ:PTON) reported wider than expected losses and said it would be cutting the price of its most popular video exercise banks, sending its shares more than 8% lower.
In others news, Gap (NYSE:GPS) raised its full-year guidance after reporting quarterly results that beat on both the top and bottom lines. The apparel retailer also lifted its full-year guidance. Its shares were closed 0.6%.
On the economic front, consumer spending rose by less than expected in July at a time when the pace of inflation continues to pick up steam.
Consumer spending rose 0.3% in July, less than the 0.4% increase expected, while
Personal consumption expenditures, the Fed’s preferred inflation gauge, rose 0.4% in July, matching economists expectations.