S&P 500 Rides Tech, Energy Rally as Powell Soothes Tightening Fears

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Investing.com – The S&P 500 climbed Tuesday, led by energy and tech after U.S. bond yields fell following as less hawkish-than-expected from Federal Reserve Chairman Jerome Powell calmed fears of aggressive Fed policy tightening. 

The S&P 500 rose 0.9%, the Dow Jones Industrial Average gained 0.5%, or 183 points, the Nasdaq added 1.4%.

Powell confirmed the Fed plans to begin normalizing policy including ending bond purchases, hiking rates, and letting bonds on its balance sheet mature later this year.

“I would expect that this year 2022 will be the year in which we take steps toward normalization [of monetary policy],” Powell said.

That would involve “ending asset purchases in March, raising rates over the course of the year  … and “perhaps later this year, we will start to allow the balance sheet to run off.”

Surging Treasury yields, which had weighed on growth sectors of the market like tech, took a breather, supported the rebound in tech pushing the broader market higher.

Meta Platforms (NASDAQ:FB), formerly know as Facebook, Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), which make up about a quarter of the S&P 500.

The recent pullback in tech was linked to “to the fear of a Fed being more hawkish and more aggressive in its policies going forward … but Powell calmed the markets in his hearing,”  Darren Schuringa, CEO of ASYMmetric ETFs said in an interview with Investing.com on Tuesday.

“The most powerful lever the Fed has to pull on right now is starting to shrink its balance sheet by selling bonds,” Schuringa added. “But Powell backed away from that saying we’re going to let our balance sheet roll off … that’s not as disruptive in the market as selling bonds.” 

Semiconductors continued to pare recent losses, up nearly 2%, following a 5% jump in Advanced Micro Devices (NASDAQ:AMD) after KeyBanc upgraded its rating on the stock to overweight from sector weight, citing cloud data center growth in 2022.

Energy was also among the top gainers on the day, as oil prices moved higher on expectations that the demand impact from the omicron impact may not be as severe as initially feared.

Occidental Petroleum (NYSE:OXY), Hess (NYSE:HES) and APA (NASDAQ:APA), led the energy sector move higher, with the latter up more than 8%.

In a potential sign of renewed appetite for risk assets, defensive corners of the market such as utilities and consumer staples were on the back foot.

The rally in the broader market comes a day ahead of the inflation report due Wednesday, the U.S. is expected to report its fastest pace of inflation since 1982. 

“The risk to the market is to the downside ahead of inflation report because I think the probability is CPI comes in hotter than expected, according to Schuringa. “If inflation is much hotter,  there’s going to be [renewed] pressure for the Fed to act.”