Gains on Wall Street as fears of rate increases subside

As investors ignore harsh remarks from a top Federal Reserve official that had stoked concerns about faster interest rate increases from the central bank, US market indexes have rebounded after plunging for two days.

St Louis Fed President James Bullard said on Thursday the US central bank needed to keep raising interest rates given that its tightening so far “had only limited effects on observed inflation”.

Comments from Bullard, a voting member of the rate-setting committee this year, which came on the back of strong retail sales data had stoked concerns that the US central bank would stick to its aggressive stance against inflation.

“Initially when that (Bullard commentary) came out, you saw the market sell off and then there was some discussion about was he being over-reactive?” said Kenny Polcari, managing partner at Kace Capital Advisors in Boca Raton, Florida.

“The rate increases that we’ve had over the last six months haven’t really had time to comple tely filter through the system and we’re going to see more of it filter over the next couple of months.”

Equities had seen strong gains last week after a softer than expected inflation report boosted hopes of smaller rate hikes from the Fed.

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Traders still largely expect the central bank to hike interest rates by 50 basis points in December and see rates peaking at 5.02 per cent in June next year.

On Friday, Federal Reserve Bank of Boston leader Susan Collins also said the central bank has more rate hikes ahead of it, echoing views of several other central bank policymakers.

The benchmark S&P 500 and the Nasdaq have lost 17 per cent and nearly 29 per cent respectively so far this year on worries that the Fed’s aggressive rate hikes could push the economy into a recession.

In early trading, the Dow Jones Industrial Average was up 128.87 points, or 0.38 per cent, at 33,675.19, the S&P 500 was up 11.34 points, or 0.29 per cent, at 3,957.90, and the Nasdaq Composite was up 10.57 points, or 0.09 per cen t, at 11,155.52.

Most of the 11 major S&P 500 sectors advanced, with defensive utilities and real estate leading gains, up about 1.0 per cent each.

Energy segment fell about 2.0 per cent as oil prices declined on concerns about weakening demand in China.

A fall in shares of heavyweights Tesla and Amazon.com checked the Nasdaq’s advance.

Gap Inc jumped 7.2 per cent after the retailer surpassed quarterly sales and profit estimates, helped by steady demand despite a surge in inflation.

Applied Materials Inc gained 1.1 per cent after the chip tools maker forecast first-quarter revenue above estimates, on hopes of easing supply chain constraints.

The S&P index recorded six new 52-week highs and no new low while the Nasdaq recorded 34 new highs and 60 new lows.

With AAP.