US stocks rose ahead of a second day of Federal Reserve Chair Jerome Powell’s testimony after he warned that rapidly rising interest rates threatened a recession.
The S&P 500 gained 0.5% in early trading on Thursday. The tech-heavy Nasdaq Composite Index rose 0.8%, while the blue-chip Dow Jones Industrial Average gained 0.4%.
Investors have mostly sold off riskier assets in recent days amid growing concerns that the Federal Reserve’s efforts to control inflation will weigh on the economy. Investors are less optimistic that the Fed can stage a so-called soft landing, where interest rates rise to curb inflation without pushing the economy into recession.
Mr Powell acknowledged those risks to lawmakers on Wednesday, saying a recession was possible and that a soft landing would be “very challenging” for the economy. Mr Powell will continue that testimony before a second group of lawmakers on Thursday.
Federal Reserve Chair Jerome Powell said interest rates would continue to rise until the central bank sees clear evidence inflation is slowing, but acknowledged that higher interest rates could lead to a recession. Photo: Elizabeth Frants/Reuters
The S&P 500 closed down 0.1% on Wednesday after Mr. Powell’s comments, while the Dow Jones Industrial Average lost 0.2%.
“Markets are in a state of flux,” said Stephen Innes, Managing Partner at SPI Asset Management. “I don’t think the market is definitely moving into a bullish zone.”
Big tech companies led premarket, with Nvidia, Snap and Amazon each up around 0.9%.
According to the Labor Department, 229,000 Americans filed for unemployment benefits last week. Jobless claims – one of the earliest indicators of weakness in the labor market – remain at historically low levels. A measure of activity in manufacturing and services is due just after the opening bell.
In bond markets, government bond yields fell for a second day but remained near their highest levels in more than a decade. The yield on the benchmark 10-year US Treasury bond fell to 3.099% from 3.155% on Wednesday. Bond yields fall when prices rise.
The US dollar strengthened, with the WSJ Dollar Index, which measures the currency against a basket of its peers, rising 0.1%.
In Europe, the pan-continental Stoxx Europe 600 was flat. Business surveys released on Thursday showed that the European economy slowed sharply in June as rising consumer prices eroded demand for a range of goods and services.
“Inflation is at the heart of all this, but there is also slowing growth and interest rates rising. It all adds up to an awful cocktail and all you have to do is step aside and wait for that to settle,” said Hani Redha, portfolio manager at PineBridge Investments.
A trader on the New York Stock Exchange on Wednesday.
Photo: BRENDAN MCDERMID/REUTERS
European gas prices soared after Germany took a step closer to rationing gas by unleashing the second stage of a contingency plan to deal with restricted Russian supplies. Gas prices in the region rose more than 5% to €134.25 per megawatt hour, the highest since March.
Bitcoin is up 3.9% from its level at 5:00 p.m. ET on Wednesday to $20,668.90. The cryptocurrency has stabilized over the past few days after a sharp selloff earlier in the month.
In commodity markets, oil prices fluctuated after sharp losses on Wednesday. Brent crude, the international oil benchmark, weakened 0.5% to $108.16 a barrel. Other commodities, whose demand is closely correlated with the economy, also slipped. Copper prices in London fell 2.6% to $8,555.50 a tonne.
Rising energy prices have been a major contributor to decades of high inflation currently rocking the global economy. Fears that a recession would weaken demand for oil prompted investors to sell the commodity, Mr Redha said.
“I’ve been saying for a while that there won’t be a bottom in stocks without also a sustained top in oil prices and bond yields,” he said. “I think that may be afoot.”
In Asia, equity markets mostly rose. In Hong Kong, the Hang Seng Index rose 1.3%, while the Shanghai Composite Index in Mainland China rose 1.6%. In Japan, the Nikkei 225 gained 0.1%.
Write to Will Horner at [email protected]
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