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Sunday, October 2, 2022

Stocks climb on the week as investors brush off Fed rate-hike comments

U.S. equities ended the holiday-shortened week higher, with investors snapping up stocks despite a series of Federal Reserve officials warning that they were considering another big interest rate hike to fight inflation, which could eat into economic growth.

The S&P 500 index jumped 2.5 percent in the four-day period, finishing at 4,067. The Dow Jones industrial average rose 1.6 percent on the week, while the Nasdaq gained 2.8 percent.

At the Cato Institute’s monetary policy conference Thursday, Fed Chair Jerome H. Powell said the central bank will act “strongly” on inflation “until the job is done.” Fed Vice Chair Lael Brainard said officials will have to raise interest rates to restrictive levels, while Fed Bank of St. Louis President James Bullard said he’s “leaning more strongly toward” a third straight 75 basis-point move.

On Tuesday the S&P 500, which had acted as a key level of support in May, closed near 3,900. The benchmark index then rallied for the next three days, spurred in part by short sellers rushing to cover stocks they’d bet against.

Meanwhile, extended coronavirus shutdowns in China continued to send oil prices lower on expectations of less demand. And a Bloomberg gauge of the dollar’s strength surged to an all-time high Tuesday.

“While the recent dip in oil and other commodities prices are a response to global economic concerns, stocks in the U.S. appear increasingly resilient,” said David Petrosinelli, senior trader at InspereX. He added that markets are “more inclined to view price relief in these commodities as a sign” that the Fed won’t have to raise interest rates “much further than what’s priced into the market today.”

The Fed’s earlier rate hikes are already rippling through the economy. Mortgage rates reached 6.11 percent, the highest level since 2008. U.S. household net worth declined $6.1 trillion in the second quarter — the most on record — as the Fed’s aggressive actions sent stocks plunging in that period.

Tuesday’s release of the consumer price index — the last before Fed officials convene for their next policy meeting Sept. 20 and 21 — is forecast to show that inflation decelerated 0.1 percent in August from the month prior, according to a Bloomberg survey of economists. On Thursday, retail sales data may give central bankers another clue about how consumers are coping with stubbornly high inflation.

The Treasury will sell 13- and 26-week bills Monday. They yielded 3.116 percent and 3.571 percent in when-issued trading, respectively. It will auction $41 billion in three-year notes the same day, and four- and eight-week bills Thursday.

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