By Chuck Mikolajczak
NEW YORK (Reuters) – U.S. stocks jumped on Friday after a report said the U.S. Federal Reserve will likely debate on a smaller interest rate hike in December, raising hopes the central bank may be ready to adopt a less aggressive policy stance.
Some Fed officials have begun sounding out their desire to slow down the pace of increases soon, according to the Wall Street Journal, and how to signal plans to approve a smaller increase in December.
San Francisco Federal Reserve President Mary Daly echoed that sentiment and said it’s time to start talking about slowing the pace of the hikes in borrowing costs and doing so should avoid sending the economy into an “unforced downturn” by hiking interest rates too sharply.
“It has an outsized influence because it is so anxious at the moment, the market is attaching itself to any headline that it sees, positive or negative, and then it will react in such a way,” said Ken Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.
Daly’s statement on the possible slowdown is being interpreted as a positive headline, so the market is taking off, he added.
Analysts widely expect the Fed to hike rates by 75 basis points for a fourth straight meeting in November. Equities have been under pressure this year as the central bank has embarked on an aggressive rate hike path as it attempts to reign in stubbornly high inflation, increasing worries of a policy error that will send the economy into a recession.
The Dow Jones Industrial Average rose 646.73 points, or 2.13%, to 30,980.32, the S&P 500 gained 74.27 points, or 2.03%, to 3,740.05 and the Nasdaq Composite added 198.82 points, or 1.87%, to 10,813.66.
Each of the three major indexes were on track for their biggest weekly percentage gains in four months.
The news helped stocks recover from early losses as Snap Inc plunged 30.07% after posting its slowest quarterly revenue growth in five years as advertisers cut spending due to inflation and geopolitical woes.
That weighed on other companies that rely heavily on ad revenue such as Meta Platforms Inc, down 1.22%, and Pinterest, off 7.42%.
Also falling after reporting quarterly earnings were American Express, which fell 2.88% and Verizon Communications, down 4.58%
American Express said it built bigger provisions to prepare for potential defaults as an economic downturn looms while Verizon’s profit slid 23% and the carrier missed estimates for wireless subscriber additions.
Next week will bring earnings from names such as Twitter, Microsoft Corp, Alphabet and Apple Inc.
Despite the recent batch of disappointing results, third-quarter earnings season has so far has been better-than-feared, with growth expectations for S&P 500 companies at 3.1%, according to Refinitiv data, up from 2.8% earlier in the week but still well below the 11.1% forecast at the start of July.
Schlumberger shot up 10.51%, helping to lift the S&P 500 energy sector 2.71%, on reporting a quarterly profit above expectations.
Advancing issues outnumbered declining ones on the NYSE by a 2.37-to-1 ratio; on Nasdaq, a 1.84-to-1 ratio favored advancers.
The S&P 500 posted 8 new 52-week highs and 32 new lows; the Nasdaq Composite recorded 36 new highs and 285 new lows.
(Reporting by Shreyashi Sanyal and Ankika Biswas in Bengaluru; Additional reporting by Bansari Mayur Kamdar; Editing by Anil D’Silva, Arun Koyyur, Shounak Dasgupta and Aurora Ellis)