Wall Street gains on hopes of trade truce, Powell's speech in focus

© Reuters. Traders work on the floor of the NYSE in New York

By Stephen Culp

NEW YORK (Reuters) – Federal Reserve Chair Jerome Powell boosted U.S. stock markets on Wednesday when he said the policy rate is now “just below” estimates of a level that neither brakes nor boosts a healthy economy, comments that many took as signaling the Fed’s three-year tightening cycle is drawing to a close.

The S&P 500 and Dow posted their biggest percentage gains in eight months, while the Nasdaq saw its largest advance in just over a month following Powell’s speech to the Economic Club of New York.

Powell said that while “there was a great deal to like” about U.S. prospects, “our gradual pace of raising interest rates has been an exercise in balancing risks.”

Earlier in the day, in its first-ever financial stability report, the Fed cautioned that trade tensions, Brexit, and troubled emerging markets could rock a U.S. financial system where asset prices are “elevated.”

“(Powell is) now acknowledging he’s close to neutral, which suggests maybe not quite as many rate hikes in the future as investors believed,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago. “It’s certainly a change of language and welcome news to investors.”

The U.S. Commerce Department affirmed that U.S. GDP grew in the third quarter at a 3.5 percent annual rate, but the goods trade deficit widened, consumer spending was revised lower and sales of new homes tumbled, suggesting clouds are gathering over what is now the second-longest economic expansion on record.

The Dow Jones Industrial Average () rose 617.7 points, or 2.5 percent, to 25,366.43, the S&P 500 () gained 61.61 points, or 2.30 percent, to 2,743.78 and the Nasdaq Composite () added 208.89 points, or 2.95 percent, to 7,291.59.

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