S&P 500 tests 4400 level amid broad post-Powell testimony equity rally

US equities rose on Wednesday as traders digested remarks from Fed Chair Jerome Powell and, despite further sharp commodity price rallies amid the ongoing Russo-Ukraine war, took a more sanguine view of risks to the economic outlook. The S&P 500 rose to its highest levels in a week and a half near 4400 and back above its pre-Russia Ukraine invasion highs in the 4380s. At current levels in the 4390s, the index trades wth on the day gains of about 2.0%.

The Nasdaq 100 index was also sharply up, gaining 1.7%, though failing to break above this week’s highs in the 14,200s. Similarly, the Dow was also sharply up, gaining 1.9%, but remained stuck below the 34,000 level amid the presence of sellers ahead of the last week’s highs in the 34,100s. Markets took reassurance from the tone of remarks from Fed Chair Jerome Powell at the first of his two days of testimony before the US Congress.

Powell noted how the Ukraine war adds considerable uncertainty to the outlook but reiterated that, given economic conditions (high inflation, hot labour market, strong growth), pressing ahead cautiously with rate hikes beginning in March remained appropriate. Powell said his preference was for a 25bps rate hike in March, a comment which seemed to go down particularly well with equity investors, who had in recent weeks fretted at the thought that the Fed might opt to go with a bigger 50bps move this month.

The Fed chair also reiterated that the Fed needs to be humble and nimble as it responds to an uncertain economic outlook. Thus, Powell went on to specifically not rule out that in the scenario where inflation doesn’t abate as quickly expected later in the year, the Fed could hike rates at faster intervals than 25bps (i.e. 50bps).

All said, Powell was on his usual good form and gave off his usual aura of a man in control, or at least that’s how investors seemed to view things as they bid stocks higher during/after his testimony. Meanwhile, stocks ignored ADP’s stronger than expected employment change estimate for February, with economists/traders scathing in their criticism of the data point's ability to accurately predict official NFP change after a massive more than 800K positive revision to January’s data.