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Stock ETFs Reverse Their Slump on Powell Comments

Stock indexes and index ETFs reversed course this morning to trade higher on Wednesday, driven by renewed investor confidence in an economic resurgence.

After more than a week of sideways to lower price action, the Dow Jones Industrial Average added 0.89% after falling over 100 points earlier in the day, helped by energy, industrial, and financial stocks. Meanwhile, the S&P 500 climbed 0.5%, while the Nasdaq Composite overcame a 1.3% loss to trade in the green.

Major stock ETFs are rallying on Wednesday as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all higher just after noon EST.

Technology stocks, which tend to be more affected by interest rates, sold off earlier as the 10-year Treasury yield crested 1.4% to notch its highest level since February 2020. But some tech ETFs like the Vanguard Information Technology ETF (VGT) are now slightly positive on the day too.

“Volatility along the way is to be expected, and higher rates will continue to drive more risk down into sectors and factors, but … dips in the equity market are meant to be bought in this environment,” Christopher Metli, a quantitative and derivative strategist at Morgan Stanley, said in a note.

Powell Comments Reverberating throughout Market

Despite comments from Federal Reserve Chair Jerome Powell in a congressional hearing Tuesday that inflation was ‘soft’ and that the U.S. economy was “a long way from our employment and inflation goals,” Treasury yields continue to surge.

Powell also addressed the House of Representatives Financial Services Committee on Wednesday, which seemed to help stocks, after the Fed chief’s remarks mitigated some of the fears about increasing price pressures and rising rates.

“Higher interest rates could moderate broad market gains, multiples should compress, and the last phase of early cycle themes could lead to Value exerting much-awaited leadership over Growth,” Ed Clissold, chief U.S. strategist at Ned David Research, said in a note.

Investors were also encouraged by vaccine news on Wednesday, when the Food and Drug Administration’s staff endorsed Johnson & Johnson’s one-shot coronavirus vaccine for emergency use, now offering three choices to U.S. citizens.

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