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March 22, 2022

Stocks bounce as investors raise rate hike expectations

U.S. stocks rebounded Tuesday as traders digested Federal Reserve Chair Jerome Powell’s latest rate hike comments.

The Dow Jones Industrial Average rose about 255 points, or 0.7%. The S&P 500 added 1.1%, and the Nasdaq Composite rallied nearly 2%.

Stocks were coming off a volatile session Monday, as Powell said “inflation is much too high” and vowed to take “necessary steps” to curb inflation. The comments came less than a week after the Fed raised rates for the first time since 2018.

“The anticipation turned out to be worse than the actual event and now the messaging that we heard yesterday … sets us up to be prepared for the worst, but hope for the best,” Liz Young, head of investment strategy at SoFi, told CNBC’s “Fast Money Halftime” on Tuesday.

Some market participants raised their expectations for rate hikes as Powell said the Fed could move the benchmark rate by a greater magnitude than previously forecast.

“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” said Powell on Monday to the National Association for Business Economics. One basis point equals 0.01%.

Goldman Sachs on Monday upped its forecast to 50 basis point hikes at the May and June Fed meetings. UBS chief U.S. economist Jonathan Pingle in a note Monday said, “We think odds of a 50 bp rate hike are rising.”

The benchmark 10-year U.S. Treasury yield on Tuesday hit 2.392% at the highs of the session, its highest level since May 2019.

Bank stocks rose Tuesday along with interest rates. JPMorgan gained about 2%, and Bank of America rose around 3%.

Technology stocks, which struggled Monday after Powell’s comments, rebounded Tuesday. Big Tech names Alphabet, Meta and Amazon all gained more than 2%, providing support to the indexes.

Nike shares moved up more than 2% after the retailer reported a beat on the top and bottom lines for its fiscal third quarter, buoyed by strong demand in North America.

Investors on Tuesday continued to watch the situation in Eastern Europe, with President Joe Biden saying Russian President Vladimir Putin’s back is “against the wall” as the war with Ukraine nears a stalemate.

The three major averages are on pace to finish the month positive. The S&P 500 is up about 3% in March, while the Dow and Nasdaq are each more than 2% higher on the month.

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