Wall St edges up as gains in banks offset hawkish Fed bets

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U.S. stock indexes edged higher in choppy trading on Thursday as bank shares rose after major lenders cleared the Federal Reserve’s annual stress test, while strong economic data stoked bets of further interest rate hikes from the central bank.

Shares of Bank of America, JPMorgan Chase, Goldman Sachs and Wells Fargo rose between 2.8% and 3.1% after the banks sailed through the Fed’s annual health check, which showed they have enough capital to weather a severe economic slump.

Bank of New York Mellon and Charles Schwab rose 1.1% and 2.0%, respectively.

The S&P 500 banks index gained 2.5%, while the KBW Regional Banking index climbed 1.8%.

“The market is getting a sense of relief because the tests are critical. The banks passing with flying colors in what would be near depression conditions tells us that the fears regarding banks were probably exaggerated,” said Thomas Hayes, chairman at Great Hill Capital.

The S&P 500 and Dow closed lower on Wednesday after Fed Chair Jerome Powell said he did not see inflation falling to the central bank’s target rate “this year or next year” and that most of the policymakers expect the Fed will need to raise interest rates at least twice by the year’s end.

On Thursday, data showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, which indicated labor market strength.

A separate report showed the U.S. gross domestic product increased at a 2.0% annualized rate in the first quarter, up from the 1.3% pace reported previously.

Following Powell’s hawkish comments and data, traders were pricing in an 89.3% chance the Fed would hike interest rates by 25 basis points to 5.25%-5.50% range in its July meeting, according to CME Group’s Fedwatch tool, up from 74.4% a week earlier.

The Personal Consumption Expenditure index (PCE), the Fed’s preferred inflation gauge, for May will be released on Friday. Economists polled by Reuters expect core rates to remain steady at 4.7%.

At 9:39 a.m. ET, the Dow Jones Industrial Average was up 101.26 points, or 0.30%, at 33,953.92, the S&P 500 was up 7.38 points, or 0.17%, at 4,384.24, and the Nasdaq Composite was up 17.14 points, or 0.13%, at 13,608.89.

Six of the 11 major S&P 500 sectors rose, as gains in financials and energy helped offset losses in utilities and consumer staples.

Micron Technology fell 3.0%, reversing premarket gains after the chipmaker beat estimates for third-quarter results.

Occidental Petroleum advanced 1.4% after Berkshire Hathaway Inc said it added more shares of the oil firm, boosting its stake to above 25%.

Advancing issues outnumbered decliners by a 1.43-to-1 ratio on the NYSE and 1.35-to-1 ratio on the Nasdaq.

The S&P index recorded 11 new 52-week highs and two new lows, while the Nasdaq recorded 30 new highs and 29 new lows.


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