Wall Street records solid gains following Powell’s dovish shift

• FOMC Chairman Powell says policy rate is near their estimate of neutral.
• 10 of 11 major S&P 500 sectors close the day in the positive territory.
• Improved sentiment boosts technology.

After starting the day modestly higher, major equity indexes in the U.S. received a boost from FOMC Chairman Powell’s remarks on the monetary policy outlook and closed the day sharply higher.  

Speaking at the  Economic Club of New York luncheon on Wednesday, Powell said that the policy rate was ‘just below’ their estimate of neutral and triggered a rally in stock markets, which were worried about the potential negative impact of rate hikes on the economic growth. Additionally, the second estimate of the GDP growth published by the U.S. Bureau of Economic Analysis stayed unchanged at 3.5%. The improved sentiment helped the risk-sensitive S&P 500 Technology Index close the day 3.44% higher.  

Commenting on the market reaction, “Powell  gave the market, and presumably President Trump, exactly what he wanted, which was an admission that the previously proposed path of future rate hikes was probably too aggressive,” Oliver Pursche, chief market strategist at Bruderman Asset Management in New York, told Reuters.

Despite another sharp fall in crude oil prices, the S&P 500 Energy Index rose 1.75% while the Consumer Discretionary added 3.23% to become the best performing sector behind technology. The S&P 500 Utilities Index, which is seen as a defensive sector, was the only major sector that finished the day in the negative territory with a 0.12% loss.

The Dow Jones Industrial Average gained 617.64 points, or 2.5%, to 25,366.37, the S&P  500 added 61.61 points, or 2.30%, to 2,743.78 and the Nasdaq  Composite  rose 208.89 points, or 2.95%, to 7,291.59.

Technical outlook by FXStreet Chief Analyst Valeria Bednarik

The index is at its highest since November 19, not yet out of the woods, according to the daily chart, in where it finished above the 20 and 200 DMA but still below the 100 DMA, this last over 200 points above the current level and directionless. Technical indicators in the mentioned chart have turned sharply higher, but only the RSI entered positive ground, now at 54.

In the 4 hours chart, however, the upside seems a bit more constructive, as the index is above all of its moving averages, with the 20 SMA turning north far below the current level and the 100 and 200 SMA converging around 25,190, while technical indicators barely lost upward strength within extreme overbought levels. Some relevant intraday highs come around 25,500 the level to surpass for the index to re-enter bullish ground.

Support levels: 25,309 – 25,244 – 25,190.

Resistance levels: 25,372 – 25,427 – 25,480.