By Sue Chang, MarketWatch , Chris Matthews
S&P 500 and Dow have best day since March 26
U.S. stocks closed higher Wednesday, with the Dow Jones Industrial Average surging more than 600 points, as investors interpreted Federal Reserve Chairman Jerome Powell's comments on interest rates as dovish.
Worries about tighter liquidity, as the Fed maintained a hawkish stance in its bid to normalize the monetary policy, had cast a shadow on the market.
How did the benchmarks fare?
The Dow rallied 617.70 points, or 2.5%, to 25,366.43, while the S&P 500 index advanced 61.65 points, or 2.3%, to 2,743.82. The Nasdaq Composite Index rose 208.89 points, or 3%, to 7,291.59.
The Dow and the S&P 500 had their biggest percentage gains since March 26 while the Nasdaq logged its best day since Oct. 25.
What drove the market?
"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy -- that is, neither speeding up nor slowing down growth," said Powell during a speech at the Economic Club of New York .
The comments were viewed by investors as a retreat from his stance in early October when he had said that the central bank "may go past neutral, but we're a long way from neutral at this point, probably."
The more benign tone follows another round of harsh criticism from Trump, who told the Washington Post in a Tuesday interview, that he was "not even a little bit happy" with his selection of Powell to succeed Janet Yellen as Fed chair. Trump has repeatedly criticized the Fed for raising interest rates.
Still, Powell said nothing to blunt expectations for a rate increase when Fed policy makers meet next month. And several economists argued that Powell's remarks were less dovish than they sounded to investors , noting he made no mention of expectations for slower growth or weaker inflation.
Aside from policy, trade concerns continue to linger as investors await developments from the G-20 summit, set to begin Friday in Buenos Aires, and which will include a face-to-face meeting between President Trump and Chinese President Xi Jinping.
The president and his top economic adviser, Larry Kudlow, both made statements this week that cast doubt on the likelihood of a trade deal or framework that would prevent new or expanded tariffs on Chinese imports from taking effect in 2019. Other media reports, however, suggest (https://www.nytimes.com/2018/11/27/us/politics/trump-xi-trade-g-20.html?action=click&module=Top%20Stories&pgtype=Homepage) that this is just posturing on the part of the White House.
What data were in focus?
The Commerce Department said gross domestic product grew at a 3.5% annualized rate in the third quarter, in a second estimate that matched the first. Economists polled by MarketWatch expected the number to be revised up to 3.6%
Separately, data showed the deficit in advanced goods trade widened to $77.2 billion in October from $76.3 billion the previous month. Economists expected the deficit to rise to $77.7 billion.
New home sales fell to an annualized rate of 544,000 in October, below the revised September rate of 597,000 new homes, the Census Bureau reported Wednesday. The print came in below expectations of a 589,000 pace, according to a MarketWatch poll of economists.
What were strategists saying?
Jamie Cox, managing partner for Harris Financial Group, said Powell did exactly what he needed to do. "He calmed the nerves of investors worried about policy overshoot and retained all the flexibility [he] had before he started talking," he said.
"Markets wanted to hear Powell say that there is no preset course of rates, that he is mindful of weaknesses in the global economy, and, most importantly, that tariffs have altered the calculus of the future of the U.S. economy," he said.
However, Ian Shepherdson, chief economist at Pantheon Macroeconomcs, warned that Powell's remarks were "not as dovish as markets think."
Shepherdson noted that the "broad range of estimates" of the neutral rate in the Fed's September forecasts ran from 2.5% to 3.5%, while the target range for the fed-funds rate is now at 2% to 2.25%. So while the bottom of the range of estimates cited by Powell is only one rate rise away, current rates are still three hikes from the middle of the range and five from the top, he said.
"Mr. Powell's own views might well be leaning to the dovish side, but he was not, in our view, signaling any impending change" in the Federal Open Market Committee's so-called dot-plot projections of future interest rates, he said.
The strong GDP report, although a revision of the initial third-quarter GDP estimate, "is a reminder to investors just how strong the U.S. economy is. With such strong growth, it's hard to make the case that the U.S economy is deteriorating," said Matt Forester, chief investment officer of BNY Mellon's Lockwood Advisors.
Which stocks were in focus?
General Motors shares gained 0.7% as the company weathered harsh criticism from President Trump, and threats of retribution, after the firm announced a restructuring that would eliminate thousands of jobs and end production at several North American plants.
Tiffany &shares slumped 12% after the firm announced same-store sales that fell short of Wall Street expectations.
Amazon rose 6.1%, a day after the firm announced that Cyber Monday was its biggest single-day of sales in the company's history. According to Rakuten Intelligence data, Amazon has secured 24% of total online holiday sales, followed by Best Buy, which captured a 7% share. Best Buy shares climbed 1.4%.
Wayfair Inc. (W) surged 15% after the online furniture and home goods retailer reported a 58% increase in direct retail sales over the peak five-day holiday shopping weekend.
Shares of Chico's FAS tumbled 35% after the women's apparel and accessories retailer reported a fiscal third-quarter profit that missed expectations as well as a steep decline in sales.
Salesforce shares gained 10% after the company beat Wall Street expectations for third-quarter profit and sales, and raised its 2019 outlook.
Shares of Discovery rose 3.9% after the company's Golf TV unit announced an exclusive, long-term global content partnership with Tiger Woods.
J.M. Smucker Co. (SJM) sank 7.2% after the consumer foods company missed profit and sales expectations and cut its full-year outlook.
Shares of Western Digital shed 1.1% after the company announced Tuesday evening that Chief Financial Officer Mark Long has decided to step down to become a private-equity investor.
How were other markets trading?
Asian markets closed in the green , with Japan's Nikkei 1% higher on strong domestic demand for consumer products. In Hong Kong, the Hang Seng Index rose 1.3%, while in China, both the Shanghai Composite and the Shenzhen Composite Indices rallied more than 1%.
European stocks pared earlier gains , with the Stoxx Europe 600 ending virtually unchanged.
Crude oil fell sharply, while gold settled higher and the U.S. dollar weakened following Powell's speech.