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The S&P 500 soared to its biggest gain in two years Wednesday and North American bond yields dropped after Federal Reserve Chair Jerome Powell downplayed the likelihood of getting even more aggressive on the size of interest rate hikes.

His comments, which came after the Fed announced a half-point increase in its benchmark rate as part of its effort to fight inflation, allayed concerns that the central bank was on its way to a massive increase of three-quarters of a percentage point at its next meeting in June.

The S&P 500 rallied 2.99%, while Canada’s benchmark stock index rose a more modest 1.3%, even as the Canadian energy sector rose sharply on a jump in crude oil prices. U.S. two-year government bond yields, the most sensitive to the Fed’s interest rate outlook, fell to session lows of 2.603% after earlier rising to 2.844%, the highest since November 2018. Canadian bond yields tracked U.S. Treasuries lower.

Stocks initially see-sawed after the rate hike announcement, then the indexes strengthened. The S&P 500′s advance of almost 3% was the strongest since May 18, 2020.

“The key turning point was when he said they were not actively considering 75 bps,” said Brian Jacobsen, senior investment strategist, at Allspring Global Investments in Menomonee Falls, Wisconsin.

“At worst, the Fed wants to meet market expectations. At best, they want to go slower or lower than what the market was pricing.”

The Federal Reserve also said it would begin shrinking the central bank’s US$9 trillion asset portfolio next month in an effort to further lower inflation.

The U.S. central bank set its target federal funds rate to a range between 0.75% and 1% in a unanimous decision, with further rises in borrowing costs of perhaps similar magnitude likely to follow.

“It’s clear that they (the Fed) understand the need to contain the soaring prices,” said Greg Bassuk, chief executive at AXS Investments in Port Chester, New York.

“Even as the Fed gets more aggressive with rate hikes, we still need to grapple with the geopolitical tensions, the ongoing COVID issues as well as these wide-ranging corporate earnings results. So not withstanding the Fed move, we think we’ll still see some more volatility ahead.”

The Dow Jones Industrial Average rose 932.27 points, or 2.81%, to 34,061.06, the S&P 500 gained 124.69 points to 4,300.17 and the Nasdaq Composite added 401.10 points, or 3.19%, to 12,964.86.

Concerns about a hit to economic growth due to a hawkish Fed, mixed earnings from some big growth companies, the conflict in Ukraine and pandemic-related lockdowns in China have hammered Wall Street recently, with richly valued growth stocks bearing the brunt of the sell-off.

Two separate sets of data Wednesday showed private employers hired the fewest workers in two years last month, while expansion in the services sector unexpectedly lost some momentum in April.

Lyft Inc shares plummeted 30% amid concerns about the company’s ridership and spending. The ride-hailing company reported first-quarter revenue of $875 million, a 44% increase over the previous year, while the number of active riders missed analyst expectations.

Starbucks Corp rose 9.9% after the coffee chain saw quarterly comparable sales grow 12% in North America.

Livent Corp gained 30.2% after it posted a better-than-expected quarterly profit and bolstered its 2022 revenue outlook on higher demand for lithium used in electric vehicle batteries.

All 11 of the major S&P sectors rose, with energy leading the gains. Bank stocks climbed 3.5%.

Volume on U.S. exchanges was 13.46 billion shares, compared with the 11.97 billion average for the full session over the last 20 trading days. Advancing issues outnumbered declining ones on the NYSE by a 3.98-to-1 ratio; on Nasdaq, a 2.39-to-1 ratio favored advancers. The S&P 500 posted two new 52-week highs and 37 new lows; the Nasdaq Composite recorded 28 new highs and 360 new lows.

The Toronto Stock Exchange’s S&P/TSX composite index ended up 279.67 points at 21,184.95, its highest closing level since April 22.

“The market had been pricing in a hawkish Fed for the entirety of 2022 and investors had been aggressively derisking and deleveraging their portfolios in anticipation,” said Brandon Michael, senior investment analyst at ABC Funds.

“With this major monetary policy announcement now in the rear view mirror and investors gaining more clarity on interest rates this could precipitate a pivot from risk-off to risk-on market action.”

The energy sector climbed 2.4% as the European Union spelled out plans to phase out imports of Russian oil, boosting oil prices. U.S. crude oil futures settled 5.3% higher at $107.81 a barrel.

The materials sector, which includes precious and base metals miners and fertilizer companies, added 1.7%, with B2Gold Corp Barrick Gold up over 2% each following upbeat earnings.

All 10 of the Toronto market’s major sectors gained ground.

Among stocks that declined was Iamgold Corp, which plunged 25.1% after the release of quarterly results. Shares of Loblaw Companies Ltd fell 1.2% after the retailer missed Wall Street estimates for first-quarter revenue.

Canadian data showed Canadian exports and imports climbing to record highs in March, adding to recent evidence of strong economic activity.

Reuters, The Associated Press, Globe staff

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