Wall Street surges as Powell cements September rate cut hopes

By Stephen Culp

NEW YORK (Reuters) - U.S. stocks rallied on Friday as dovish remarks from U.S. Federal Reserve Chair Jerome Powell solidified expectations that the central bank will cut its key policy rate in September.

In highly anticipated remarks before the Jackson Hole Economic Symposium, Powell said "the time has come" to lower the Fed funds target rate, and "the upside risks of inflation have diminished."

"We do not see or welcome further weakening in labor market conditions," Powell added in a speech that appeared to all but guarantee a rate cut at next month's policy meeting, the first such cut in over four years.

"This is a dovish Powell today, and we see markets responding accordingly," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. "What he’s suggesting here is if the labor market continues to weaken, we’re looking at a 50 basis-point rate cut in September as opposed to 25."

All three major U.S. stock indexes extended their gains after the release of Powell's prepared remarks, with megacaps Nvidia, Apple and Tesla providing the most muscle.

Small caps and regional banks were outperformers, jumping 3.1% and 4.9%, respectively.

"We’re having a minor rally after yesterday’s pullback," said Jay Hatfield, portfolio manager at InfraCap in New York. "We’re seeing the rally you’d expect in interest rate-sensitive stocks."

All three indexes are on track to log weekly advances, standing on the shoulders of last week's largest Friday-to-Friday percentage gains of the year.

Next week, the data-dependent Fed will have a raft of economic indicators to consider ahead of its September rate decision, including the Commerce Department's revised second-quarter GDP and its broad-ranging Personal Consumption Expenditures (PCE) report, which includes the Fed's preferred inflation yardstick, the PCE price index.

At 2:19 p.m. EDT, the Dow Jones Industrial Average rose 366.71 points, or 0.9%, to 41,079.49, the S&P 500 gained 48.88 points, or 0.88%, to 5,619.52 and the Nasdaq Composite added 212.52 points, or 1.21%, to 17,831.87.

Among the 11 major sectors in the S&P 500, all but consumer staples were in positive territory. Real estate shares were boasting the largest percentage gain.

Workday beat quarterly revenue expectations and announced a $1 billion stock buyback plan, sending shares of the human resources software firm up 11.9%, the biggest percentage gainer on the Nasdaq.

Ross Stores gained 2.1% after the discount retailer raised its fiscal 2024 profit forecast.

Turbo Tax's parent Intuit sagged 6.9% in response to disappointing quarterly revenue.

Advancing issues outnumbered declining ones on the NYSE by an 8.19-to-1 ratio; on the Nasdaq, a 3.77-to-1 ratio favored advancers.

The S&P 500 posted 74 new 52-week highs and no new lows; the Nasdaq Composite recorded 136 new highs and 38 new lows.

(This story has been refiled to fix a typo in paragraph 11)

(Reporting by Stephen Culp in New York; Additional reporting by Medha Singh and Johann M Cherian in Bengaluru; Editing by Devika Syamnath and Matthew Lewis)