Stocks rallied Friday as traders cheered comments from Federal Reserve Chairman Jerome Powell at the annual central bank conference in Jackson Hole, Wyoming, that point to stronger-than-expected economic growth.
The Dow Jones Industrial Average closed up 247.48 points, or 0.7% at 34,346.90, after being up more than 300 points at session highs. The S&P 500 gained about 0.7% to close at 4,405.71, while the tech-heavy Nasdaq Composite advanced 0.9% to 13,590.65, which was enough to help both indexes snap a three-week losing streak. However, the Dow logged a second-straight week of losses.
The S&P 500 energy and consumer discretionary sectors both rose at least 1% on Friday. Petroleum company Valero Energy and toymaker Hasbro were among the day's biggest gainers, advancing 2.8% and 5.7%, respectively.
Optimism was fueled, in part, by Powell's confidence in continued economic growth in the U.S., as he cited "especially robust" consumer spending and early signs of a recovery in the housing market. He reiterated the central bank's commitment to pull inflation back down to its 2% goal.
"The economy may not be cooling as expected. So far this year, GDP (gross domestic product) growth has come in above expectations and above its longer-run trend, and recent readings on consumer spending have been especially robust," Powell said. "In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up."
Given that Powell gave no clear indication of which way he sees interest rates heading, however, LPL Financial chief global strategist Quincy Krosby said the trajectory of rising Treasury yields will be a key underpinning of market direction.
"Regardless of the reason that yields move higher, what they do is that they tighten financial conditions by themselves because the cost of capital goes up," Krosby said. The yield on the benchmark 10-year Treasury note ended Friday lower at 4.233%, after hitting highs earlier in the week.
Some investors expressed optimism that the Fed is nearing the end of its rate-hiking cycle.
"We believe the Fed is going to err on the side of ensuring they do not do too little," said Alex Petrone, director of fixed income for Rockefeller Asset Management. Petrone noted the Fed might only have one or two rate hikes left, "but it does require staying higher for longer and keeping policy rates restrictive until they're really confident that inflation is sustainably at a lower level."
Similarly, Timothy Chubb, CIO of Girard, sees Friday's comments from Fed officials beginning to give the market confidence that future rate hikes may not be necessary.
"We're getting the data that we need to see as inflation moves from those 9% levels down to 3%. And I think at this point, the question really just revolves around how much pain is the Fed willing to further inflict on the economy to get inflation from 3% to 2%," he said.
