As the Jackson Hole conference of the Federal Reserve was about to start, the stock market was surging. China’s economic stimulus is boosting the economy.
The Dow Jones Industrial Average has increased by 15 points (DJIA +0.07%). The Nasdaq Composite has increased by 0.7%, while the S&P 500SPX +0.49% has up by 0.5%.
The major indices are now trying to begin a winning streak after ending three-day losing streaks on Wednesday, even if they are still down for the week.
This prepares the ground for the yearly Jackson Hole Symposium, where the Fed will elaborate on the pace of rate increases in the future. On the strength of a July inflation result that was below June’s reading, which has helped lift the stock market from its June lows, Wall Street anticipates the Fed to slow down the pace of interest rate hikes.
The stock market isn’t currently concerned that rising rates will significantly harm the economy or business profits. Companies already demonstrated in the second quarter that they are still capable of outperforming analyst earnings projections.
“The market seems more comfortable that higher interest rates will not derail earnings,” wrote Louis Navellier, founder of Navellier & Associates.
The market’s interpretation of the Fed is now under question. Markets anticipate that the Fed will hike the fed-funds rate by at least half a point at its September meeting, with a 61% likelihood of a three-quarter point increase. Any hint that the increase will only be half a point or that future increases will be smaller could raise stock prices.
“Investors have their sights set on tomorrow’s speech from Powell,” wrote Chris Larkin, managing director of trading at ETrade.
But it’s not just the US; China too took action to revive its ailing economy. The $146 billion, 19-point fiscal stimulus program from China lifted Asian stocks and overall risk sentiment, and it now seems to be spreading confidence into the U.S. premarket session. Although economists have emphasized that it’s unlikely to be a panacea for faltering development in the second-largest economy in the world, the measures should nonetheless give the Chinese GDP and debt investment some assistance.
“One supportive factor has been a further package of measures from China’s State Council that includes 1 trillion yuan focused largely on infrastructure spending,” said Henry Allen, an analyst at Deutsche Bank.
Following the news of the Chinese fiscal stimulus, shares of Alibaba (ticker: BABA) increased by 7.5%, while those of IT rivals JD.com (JD) and NetEase (NTES) also saw increases.
Powell will take center stage starting tomorrow.