Tech Stocks Rally: Nasdaq Closes At Record High After Powell Eases Inflation Concerns
Despite a steep crash at the end of last week, stocks rallied to new highs Tuesday as Federal Reserve Chair Jerome Powell insisted during a congressional hearing that recent price spikes will only be temporary, easing concerns that unexpected interest rate hikes could tank the stock market.
The tech-heavy Nasdaq jumped 0.8% to 14,253 points Tuesday, surpassing a closing high from June 14.
Netflix, Amazon and Facebook were among stocks heading up the index’s gains, climbing 3%, 2% and 1.9%, respectively.
Meanwhile, the Dow Jones Industrial Average jumped 69 points, or 0.2%, to 33,945 points, about 2.3% below an all-time closing high on May 7, while the S&P 500 jumped 0.5% to 4,248 points, about 0.1% from its last closing high, also on June 14.
Testifying before the House’s coronavirus subcommittee Tuesday afternoon, Powell reiterated the Fed’s long-standing stance that rising inflation in recent months is due to transitory, or temporary, factors, including supply bottlenecks, a rebound in spending and very low inflation readings from early in the pandemic.
Powell also declared the Fed will not raise rates preemptively based on inflationary fears alone, instead saying the central bank will only react to “actual evidence of actual inflation,” which Fed officials expect could lead to interest rate hikes in 2023.
Stocks climbed broadly after Powell’s Tuesday remarks, with the S&P’s consumer discretionary, technology and communications sectors leading the market’s gains.
Rising rates and accelerating economic growth this year have spurred a stock-market rotation away from growth stocks, like those in technology, to cyclical and value-leaning slices of the market, such as energy and financial stocks. “Growth has underperformed the market, but this dynamic may not last forever,” Morgan Stanley analysts wrote in a research note last week, calling inflation the “most proximate” risk for stocks and saying any indication the Fed will raise interest rates to combat rising prices could rock the market—and hit tech stocks the hardest. The Dow finished its worst week since October on Friday, as traders worried over impending Fed hikes. Powell’s Tuesday comments, however, make it clear the Fed isn’t looking to raise rates anytime soon.
Consumer prices rose 0.6% between April and May and 5% over the 12 months ending in May—the highest annual rate in 13 years and more than economists were expecting. “Whilst it is true that the pandemic’s economic disruption has radically changed consumers’ spending patterns around the world, raising concerns around increased inflation, these levels are what we would expect and represent a short-term trend that will correct over time,” Oliver Wright, a global consumer goods and services lead at Accenture, said of the report.