Stocks Rally as Fed Chair Powell Says the US Economy Remains Strong

The S&P 500 Index ($SPX) (SPY) Wednesday closed up +1.08%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.92%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.30%.  March E-mini S&P futures (ESH25) are up +1.11%, and March E-mini Nasdaq futures (NQH25) are up +1.31%. 

Stock indexes rallied Wednesday, with the S&P 500 posting a 1-1/2 week high and the Dow Jones Industrials posting a 1-week high.  Stocks gained and bond yields fell after the FOMC kept interest rates unchanged but projected two 25 bp interest rate cuts by the end of the year.  Stock gains accelerated Wednesday afternoon based on comments from Fed Chair Powell, who said the US economy remains strong and there's no need for action by the Fed in the face of uncertainty from tariffs and their impact on inflation. 

Wednesday's rebound in the Magnificent Seven stocks from Tuesday's selloff was also bullish for the overall market.  Tesla rose more than +4% after California approved the company to begin carrying passengers in its vehicles in a step toward fide-hailing services.  Also, Nvidia rose more than +1% after CEO Huang, at an AI conference, unveiled more powerful chips and related technology that he said would provide a clearer payoff to customers. 

On the bearish side for stocks are stagflation concerns in the US economy after the FOMC cut its 2025 US GDP forecast and raised its 2025 inflation forecast.  The FOMC also raised their 2025 year-end US unemployment estimate.

The FOMC, as expected, kept the federal funds rate target unchanged at 4.25%-4.50%.  The post-meeting statement said, "uncertainty around the economic outlook has increased, and removed language saying risks to achieving employment and inflation goals "are roughly in balance."

The FOMC maintained its "dot plot" of interest rate projections unchanged from December, projecting a year-end fed funds target rate of 3.88%, which implies two 25 bp interest rate cuts this year.  The FOMC also said it would slow the pace of runoff of its securities holdings beginning in April by reducing the monthly cap on Treasury securities redemption from $25 billion to $5 billion and maintaining the monthly redemption cap on agency debt and mortgage-backed securities at $35 billion. 

The FOMC cut its 2025 US GDP forecast to 1.7% from a December forecast of 2.1% and raised its US 2025 core inflation forecast to 2.8% from 2.5%. The FOMC also raised their 2025 year-end US unemployment estimate to 4.4% from 4.3%.

Fed Chair Powell said the US economy is strong overall, and the Fed doesn't need to be in a hurry to adjust its policy stance due to heightened economic uncertainty.

US MBA mortgage applications fell -6.2% in the week ended March 14, with the purchase mortgage applications sub-index up +0.1% and the refinancing mortgage sub-index down -12.8%.  The average 30-year fixed rate mortgage rose +5 bp to 6.72% from 6.67% in the prior week.

The Bank of Japan (BOJ) kept its overnight call rate unchanged at 0.50%, as expected, and cited worries over the potential impact of US tariff policies.

Geopolitical risks in the Middle East are negative for stocks. Israel on Tuesday launched a series of airstrikes across Gaza, ending a two-month ceasefire with Hamas, and Israeli Prime Minister Netanyahu vowed to act "with increasing military strength" to free hostages and disarm Hamas.  Also, the US launched weekend strikes on Yemen's Houthi rebels.  US Defense Secretary Hegseth said strikes would be "unrelenting" until the group stops attacking vessels in the Red Sea. The Houthi rebels said they would respond by attacking US vessels in the Red Sea. 

Stocks have been under pressure over the past two weeks due to fears that US tariffs will weaken economic growth and corporate earnings.  On March 4, President Trump imposed 25% tariffs on Canadian and Mexican goods and doubled the tariff on Chinese goods to 20% from 10%.  On Sunday, Mr. Trump reiterated that he would impose reciprocal tariffs and additional sector-specific tariffs on foreign nations on April 2. 

The markets are discounting the chances at 21% for a -25 bp rate cut after the May 6-7 FOMC meeting.

Overseas stock markets on Wednesday settled mixed.  The Euro Stoxx 50 rose to a 1-1/2 week high and closed up +0.41%.  China's Shanghai Composite Index fell from a 3-month high and closed down -0.10%.  Japan's Nikkei Stock 225 fell from a 2-1/2 week high and closed down -0.25%.

Interest Rates

June 10-year T-notes (ZNM25) Wednesday closed up +6.5 ticks.  The 10-year T-note yield fell -3.1 bp to 4.252%.  June T-notes Wednesday recovered from early losses and posted moderate gains after the FOMC kept interest rates unchanged as expected but projected two 25 bp rate cuts by the end of the year.  T-notes also rose after the FOMC cut its US 2025 GDP forecast and raised its year-end unemployment rate forecast, dovish factors for Fed policy. In addition, the FOMC said it would slow the pace of runoff of its balance sheet starting next month, a dovish factor for Fed policy.

Wednesday's rally in stocks limited the upside in T-notes. Also, the FOMC's action to raise its US 2025 core inflation forecast was bearish for T-notes.  In addition, comments from Fed Chair Powell weighed on T-notes when he said the US economy is strong overall and the Fed doesn't need to be in a hurry to adjust its policy stance. 

European bond yields Wednesday moved lower.  The 10-year German bund yield fell to a 2-week low of 2.745% and finished down -0.6 bp to 2.804%.  The 10-year UK gilt yield fell to a 1-week low of 4.615% and finished down -1.3 bp to 4.631%.

Eurozone Feb CPI was revised downward by -0.1 to 2.3% y/y from the previously reported 2.4% y/y.

Eurozone Q4 labor costs eased to +3.7% y/y from +4.5% in Q3, the smallest pace of increase in more than two years.

Swaps are discounting the chances at 54% for a -25 bp rate cut by the ECB at the April 17 policy meeting.

US Stock Movers

The Magnificent Seven stocks rallied Wednesday, lifting the overall market.  Tesla (TSLA) closed up more than +4% after California granted the company approval to begin carrying passengers in its vehicles in a step toward fide-hailing services.  Also, Alphabet (GOOGL) closed up more than +2%, and Apple (AAPL), Microsoft (MSFT), and Amazon.com (AMZN) closed up more than +1%.  Nvidia (NVDA) closed up more than +1% after CEO Huang, at an AI conference, unveiled more powerful chips and related technology that he said would provide a clearer payoff to customers.  Finally, Meta Platforms (META) closed up +0.50%. 

Boeing (BA) closed up more than +6% to lead gainers in the S&P 500 and Dow Jones Industrials after the CFO said Q1 is broadly tracking according to expectations and that cash burn "could be in the hundreds of millions" of dollars better expected as working capital come down.

Recently beaten-down travel stocks rallied Wednesday after Fed Chair Powell said the US economy remains strong.  As a result, Royal Caribbean Cruise Ltd (RCL) closed up more than +5%, and Carnival (CCL), Expedia Group (EXPE), United Airlines Holdings (UAL), and Norwegian Cruise Line Holdings (NCLH) closed up more than +4%.  Also, Delta Air Lines (DAL), Southwest Airlines (LUV), and Mariott International (MAR) closed up more than +3%.   

Signet Jewelers Ltd (SIG) closed up more than +17% after saying sales are rebounding after a weak holiday period and expects Q1 revenue of $1.50 billion-$1.53 billion, above consensus of $1.50 billion. 

Affirm Holdings (AFRM) closed up more than +9% after Compass Point Research & Trading upgraded the stock to buy from neutral with a price target of $64. 

Autodesk (ADSK) closed up more than +3% after the Wall Street Journal reported activist investor Starboard Value, who has a more than $500 million stake in the company, is preparing to wage a proxy fight at the company.

Venture Global LNG Inc (VG) closed up more than +3% after Bloomberg reported that the Trump administration is prepared to give the company approval to export natural gas from a planned facility in Louisiana that had stalled under the prior administration. 

Mosaic (MOS) closed up more than +3% after Barclays upgraded the stock to overweight from equal weight with a price target of $33. 

RTX Corp (RTX) closed up more than +2% after Baird upgraded the stock to outperform from neutral with a price target of $160. 

HealthEquity Inc (HQY) closed down more than -16% after reporting Q4 adjusted EPS of 69 cents, below the consensus of 71 cents, and forecast 2026 adjusted EPS of $3.57-$3.74, the midpoint below the consensus of $3.70. 

Intel (INTC) closed down more than -6% to lead losers in the S&P 500 and Nasdaq 100 after a Taiwan Semiconductor Manufacturing Co. board member dismissed a Reuters report that said his company had discussed a collaboration with Intel. 

Progressive Corp (PGR) closed down more than -3% after reporting net premiums written for February of $6.68 billion, below expectations.

Quest Diagnostics (DGX) closed down more than -2% after forecasting full-year adjusted EPS of $9.55-$9.80, the midpoint below the consensus of $9.71

Gilead Sciences (GILD) closed down more than -2% after the Wall Street Journal reported that the US Department of Health and Human Services plans to cut feral government funding for domestic HIV. 

General Mills (GIS) closed down more than -1% after cutting its full-year organic net sales forecast to -1.5% to -2.0% from a previous estimate of 0% to +1.0%, weaker than the consensus of -0.33%. 

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