Dow ends over 700 points higher to exit bear market after Powell signals smaller interest-rate hikes ahead

What drove markets

U.S. equities closed out the month on a positive note as traders assessed a speech by Federal Reserve Chairman Jay Powell which indicated the central bank may decide to raise interest rates at a slower pace at its next policy meeting.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” Powell said, in a speech to the Brookings Institution on Wednesday.

He said the ultimate level of the Fed’s benchmark rate would have to be higher than it was thought a few months ago, and he tried to keep any talk of rate cuts off the table.

See: Powell says pace of interest-rate increases can slow as soon as December meeting

“Powell needs to keep talking tough but he gave Wall Street reason for hope,” said David Russell, vice president of market intelligence at TradeStation Group. “Everyone knows rate hikes take time to operate and we’re seeing their effects as the labor market cools.”

“We’ve seen progress in the CPI and even Powell expects more downward pressure as goods prices fall. Powell confirmed what the market already knew and set the stage for some adjustments to the projections next month. This could let investors view the glass as half full into year-end,” Russell said in an emailed comment.

Stocks rallied after Powell’s speech with the S&P 500 index erasing all of the decline in the previous two sessions. The index also closed above its 200-day moving average for the first time since April 2022.

See: The Dow ‘exits’ bear-market territory. Here’s why investors should take it with a grain of salt

“Investors love tangible information, so even though this is not a print from the meeting, you have the chair coming out and giving what investors see as a much more tangible symbol than even the minutes that we saw last week,” Shelby McFaddin, senior analyst at Motley Fool Asset Management, told MarketWatch via phone.

The U.S. economy grew steadily through the fall and inflation eased a bit, a Federal Reserve survey known as the Beige Book found, but many businesses expressed “greater uncertainty or increased pessimism” about the outlook toward the end of the year.

Data released Wednesday morning showed job openings in the U.S. fell to 10.3 million in October in another sign the labor market is cooling off as the economy softens, but the cooling may not be enough to satisfy the Fed. Job listings declined from 10.7 million in September, the Labor Department said.

ADP on Wednesday said the private sector added 127,000 jobs in November. Economists surveyed by The Wall Street Journal, on average, had looked for a rise of 190,000. In other data, third-quarter gross domestic product figures were revised to show a 2.9% annual rise versus an initial estimate of 2.6%.

Related: Inflation slows, Fed’s Beige Book finds, but recession worries grow

One of the Fed’s most closely watched inflation gauges, the personal-consumption expenditures index, will be published on Thursday, followed on Friday by the monthly employment report from the U.S. Labor Department.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, argued that whatever the upcoming raft of data showed it may be difficult for equities to gain much in the short term.

“Strong economic data, like strong growth and strong jobs means that the Fed will continue its aggressive tightening and could aim for relatively higher terminal rates. That’s bad for stock valuations. And soft inflation figures and softening spending are good for the Fed expectations, but they will boost recession odds, which is obviously not good for the stock valuations either,” she said in a morning bulletin.

Related: Here’s what stock-market investors are getting wrong about China and its zero-COVID policy, economists say

Elsewhere overnight, markets in China continued to rebound after the protests against the country’s zero-COVID triggered a sharp sell-off Monday. Hong Kong’s Hang Seng Index
HSI,
+2.16%
 jumped 2.2% on Wednesday, booking a monthly gain of over 25%. It is the largest one month percentage gain since 1998, according to Dow Jones Market Data.

Despite fresh news of contracting China manufacturing, concerns about COVID restrictions in that country impacting the global economy appeared to have died down for now, allowing investors to refocus on the topic that has been driving stocks for much of the year: the Fed’s monetary policy trajectory.

Companies in focus

• Shares of Dow component Walt Disney Co.
  DIS,
  +3.36%
  finished 3.4% higher after the entertainment conglomerate said it expects its newly reappointed CEO Robert Iger to implement organizational and operating changes to address the board’s goal of boosting profitability, and that the moves could result in impairment charges.

• Crowdstrike Holdings Inc.
  CRWD,
  -14.75%
  fell 14.7% after the cybersecurity company said new subscriptions came in below expectations amid macro headwinds and longer customer buying cycles.

• Hormel Foods Corp.
  HRL,
  -2.47%
  shares dropped 2.5%, after the meat and food products company topped fiscal fourth-quarter profit forecasts but fell short on sales and provided a downbeat outlook.

• Biogen Inc. stock
  BIIB,
  +4.72%
   rose 4.7%, after a new study was unveiled late Tuesday that showed the company’s experimental Alzheimer’s drug being developed with Japan’s Eisai moderately reduced cognitive decline after a year and a half.

• Hewlett Packard Enterprise Co.’s
  HPE,
  +8.54%
  stock was up 8.5% after the company reported quarterly results in line with analysts’ estimates and offered strong revenue guidance.

• Some of the most popular Chinese stocks continued to rally on Wednesday. Shares of Alibaba Group
  BABA,
  +9.64%
  climbed 9.6%, while the search giant Baidu Inc.
  BIDU,
  +8.99%
  soared as much as 9%, and streaming video platform Bilibili Inc.
  BILI,
  +12.73%
  surged 12.7%. 

— Jamie Chisholm contributed to this article.