Hawkish Powell Drives S&P 500 and NASDAQ to All-Time Highs

The benchmark S&P 500 Index and the tech-driven NASDAQ Composite Index hit record highs on Friday after the top Federal Reserve policymaker described the U.S. economy as “strong”. The Dow Jones Industrial Average rose 159 points.

The main catalysts for the surge in the stock market were bullish comments from Fed Chair Jerome Powell at the Jackson Hole Symposium in Wyoming, where leading central bankers met to discuss the future of monetary policy.

In his speech, delivered at 1400 GMT, Powell said he sees “further, gradual” rate hikes moving forward, noting the economy is “strong” and can handle tighter monetary policy.

The stock market jumped after Powell’s comments because investors weren’t sure how hawkish the Fed Chair was going to be. Investors may have also been reacting to Powell’s comments about inflation which he didn’t see rising meaningfully above 2 percent. This prompted his is call for the gradual pace of rate hikes.

Given Friday’s strong rally, the markets are set to post a solid gain for the week. Earlier in the week, the markets were boosted by strong earnings and solid economic data. From the earnings front, retailers Lowe’s and Target reported better-than-expected earnings this week.

In economic news, weekly jobless claims fell to 210,000, near levels not touched since 1969. On Friday, core durable goods orders rose 1.4 percent in July, more than the expected 0.4 percent increase. This is a sign that business investment started the third quarter on a strong note.

Investors shrugged off the negative news posted earlier in the week, choosing instead to focus on the positive developments. Concerns ranged from potential legal woes for President Trump to new tariffs from China on U.S. imports.

As far as Trump’s legal woes are concerned. Several news headlines tried to tie the President to Michael Cohen, Trump’s former personal lawyer, who plead guilty on Tuesday to eight counts related to tax fraud, campaign contributions, making false statements to a financial institution and unlawful corporate contributions. Despite the attempt to link Trump to Cohen’s problems, the stock market’s progress this week suggests investors didn’t believe the headlines and may be waiting for further proof of any connection with Trump.

The same goes for former Trump campaign manager Paul Manafort, who was found guilty on eight counts in a separate case. The plan to derail the stock market with a series of negative headlines about Trump’s ties to Manafort also backfired.

Investors also had to deal with new tariffs from China, but this event seems to have been already priced into the market. Furthermore, low level trade talks with China failed to yield any fruit as expected. Finally, President Donald Trump on Friday announced that he had asked his secretary of state, Mike Pompeo, to cancel a planned trip to North Korea because there had not been enough progress in talks so far.