Wall Street jumps as Powell hints interest rate hikes may taper off

By Stephen Culp

NEW YORK (Reuters) - Federal Reserve Chair Jerome Powell boosted U.S. stock markets on Wednesday when he said the policy rate is now "just below" estimates of a level that neither brakes nor boosts a healthy economy, comments that many took as signalling the Fed's three-year tightening cycle is drawing to a close.

The S&P 500 and Dow posted their biggest percentage gains in eight months, while the Nasdaq saw its largest advance in just over a month following Powell's speech to the Economic Club of New York.

Powell said that while "there was a great deal to like" about U.S. prospects, "our gradual pace of raising interest rates has been an exercise in balancing risks."

 

Earlier in the day, in its first-ever financial stability report, the Fed cautioned that trade tensions, Brexit, and troubled emerging markets could rock a U.S. financial system where asset prices are "elevated."

"(Powell is) now acknowledging he's close to neutral, which suggests maybe not quite as many rate hikes in the future as investors believed," said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago. "It's certainly a change of language and welcome news to investors."

The U.S. Commerce Department affirmed that U.S. GDP > grew in the third quarter at a 3.5 percent annual rate, but the goods trade deficit widened, consumer spending was revised lower and sales of new homes tumbled, suggesting clouds are gathering over what is now the second-longest economic expansion on record.

The Dow Jones Industrial Average <.DJI> rose 617.7 points, or 2.5 percent, to 25,366.43, the S&P 500 <.SPX> gained 61.61 points, or 2.30 percent, to 2,743.78 and the Nasdaq Composite <.IXIC> added 208.89 points, or 2.95 percent, to 7,291.59.

Of the 11 major sectors in the S&P 500, all but utilities <.SPLRCU> were positive. Technology <.SPLRCT> and consumer discretionary <.SPLRCD> were the biggest percentage gainers, each up more than 3 percent.

The S&P 500 Automobile & Components index <.SPLRCAU> was up 1.4 percent after President Donald Trump said he was studying new auto tariffs in the wake of General Motors Co's announcement that it would close plants and cut its workforce.

Health insurer Humana Inc cut its 2019 forecast for Medicare drug plan enrolment, but upped its estimated enrolment in the company's Medicare Advantage plan. Its stock ended the session up 6.2 percent.

Salesforce.com Inc beat analysts' earnings estimates and forecast better-than-expected 2020 revenue, sending its shares up 10.3 percent. Other cloud software makers rose on the news, with the ISE Cloud Index <.CPQ> gaining 3.5 percent.

Microsoft Corp briefly surpassed Apple Inc in market cap but Apple took back its lead by closing. Nevertheless, Microsoft closed 4.0 percent higher as it benefited from optimism regarding demand for cloud computing services.

Among losers, Tiffany & Co shares dropped 11.8 percent after the luxury retailer missed quarterly sales estimates on slowing Chinese demand.

Advancing issues outnumbered declining ones on the NYSE by a 3.95-to-1 ratio; on Nasdaq, a 3.58-to-1 ratio favoured advancers.

The S&P 500 posted 17 new 52-week highs and six new lows; the Nasdaq Composite recorded 37 new highs and 129 new lows.

Volume on U.S. exchanges was 8.04 billion shares, compared with the 7.82 billion-share average over the last 20 trading days.

(Reporting by Stephen Culp; additional reporting by Noel Randewich and Sinead Carew; editing by Jonathan Oatis)