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Dow books 4th day of gains, stocks rally after Fed minutes signal flexibility on interest rate hikes
27 May 2022
On Tuesday, the Dow industrials rose 0.2% to 31,928.62, its third straight gain. The S&P 500 fell 0.8%, snapping two straight days of gains, while the Nasdaq Composite slumped 2.4% to 11,264.45, its lowest close since Nov. 3, 2020.
What drove the markets?
Stocks closed higher after the Federal Reserve released minutes of its early May meeting, which signaled the central bank remains open to rethinking aggressive plans to raise rates to tame high inflation.
Minutes from the May meeting showed support for half-point moves by the Fed as it seeks to get its policy rate “expeditiously toward neutral,” over the next couple of meetings and that high inflation remains a key focus.
“The one thing this Fed is very good at is being measured,” said Eric Merlis, managing director of global markets at Citizens, by phone. “I chose to see this as a recognition that they’re not going to go headlong along a path,” he said. “They recognize things could change.”
Concerns have been mounting about the potential for the Fed to tighten financial conditions too sharply and damage the economy, particularly with businesses and households already facing the sharpest price pressures in decades.
The fear is economic growth will slow quickly, with the war in Ukraine and China’s COVID lockdowns worsening the outlook. 
U.S. benchmark stock indexes have suffered this month after grim earnings outlooks from several major retailers. More reports this week could help inform how other companies are handling inflationary pressures. Snowflake SNOW and Nvidia NVDA are set to post quarterly reports after the bell Wednesday. Costco COST will report on Thursday.
“I think the market has put in a bottom,” said Peter Cardillo, chief market economist at Spartan Capital Securities, by phone.
The S&P 500’s recent testing of the 3,850 level, but then finding higher ground, helped inform his rationale. Cardillo also said investors have been “through the discounting process of high inflation,” aggressive tightening of financial conditions by the Fed and the probability of a recession.
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