Stocks rally, U.S. yields flat on hope for central banks pause

By Chuck Mikolajczak

NEW YORK (Reuters) – A gauge of global stocks climbed for a third straight day and longer-dated U.S. Treasury yields were flat on Thursday, as policy announcements from a host of central banks added to optimism that the cycles of interest rate hikes may be near an end.

After the U.S. Federal Reserve raised rates by 25 basis points (bps) on Wednesday, as was widely expected, markets rallied following comments from Fed Chair Jerome Powell acknowledging the “disinflationary” process may have begun.

The European Central Bank (ECB) and Bank of England (BoE) hiked by 50 basis points each on Thursday, with the BoE signaling the tide was turning against inflation and the ECB indicating at least one more hike was on the horizon.

On Wall Street, the S&P 500 and Nasdaq rallied, with the S&P 500 closing at its highest intraday level since Aug. 19 and the Nasdaq closing at its highest since Sept. 12, getting an additional boost from a 23.28% surge in Facebook parent Meta Platforms Inc, its biggest daily percentage jump since July 25, 2013, following its quarterly results and $40 billion buyback announcement. That helped the S&P communication services sector jump 6.74%, its biggest daily percentage gain since March 13, 2020.

“The reaction to yesterday’s Fed comments really encouraged investors to go risk-on,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

“The bottom line for investors, I think, is that the Fed’s comments were unexpected.”

The Dow Jones Industrial Average fell 39.02 points, or 0.11%, to 34,053.94 while the S&P 500 gained 60.55 points, or 1.47%, to 4,179.76 and the Nasdaq Composite added 384.50 points, or 3.25%, to 12,200.82.

On the economic front, weekly initial jobless claims dropped to a nine-month low, showing the labor market remains strong, while worker productivity in the fourth quarter accelerated. Investors will eye the January payrolls report on Friday for further signs of labor market strength.

With 46% of the S&P 500 having reported results, earnings for the quarter are expected to decline 2.4% from the year-ago period, according to Refinitiv data, compared with a 1.6% expected decline at the start of the year.

After the closing bell, Amazon shares lost 6.56% and Google parent Alphabet dropped 6.09% after their quarterly results.

European stocks also jumped, with the STOXX 600 closing at its highest level since April 21 as it notched its biggest one-day percentage gain in a month.

The pan-European STOXX 600 index rose 1.35% and MSCI’s gauge of stocks across the globe gained 1.12%. The MSCI index hit its highest intraday level since May 5 and was on track for its ninth gain in the past ten sessions.

Benchmark 10-year notes were unchanged to 3.398%, reversing an earlier move lower.

The dollar bounced, however, from its biggest one-day percentage drop in nearly a month on Wednesday, while the euro and sterling weakened following the ECB and BoE announcements.

The dollar index rose 0.773%, with the euro down 0.73% to $1.0909.

The Japanese yen strengthened 0.21% versus the greenback at 128.67 per dollar, while sterling was last trading at $1.2228, down 1.20% on the day.

In commodities, the dollar strength served to dent oil prices, with U.S. crude settling down 0.69% at $75.88 per barrel and Brent settled at $82.17, down 0.81% on the day.

(Reporting by Chuck Mikolajczak; additional reporting by Karen Brettell, Lewis Krauskopf and Lisa Pauline Mattackal; editing by Jonathan Oatis, Chizu Nomiyama and Nick Zieminski)