The stock rally gained traction, defying calls from skeptics in the aftermath of the Federal Reserve decision, with traders paring bets on rate hikes as the drumbeat of recession grew louder amid an ugly economic print.

Equities climbed to a seven-week high, led by defensive groups, which are often sought after during challenging times. Bond yields sank, and swaps referencing policy meeting dates showed bets the fed funds rate will peak around 3.25 per cent before the end of 2022, less than 100 basis points above its current level. In late trading, Amazon.com Inc. and Apple Inc. jumped, while Intel Corp. slid after reporting results.

Investors continued to embrace the idea the Fed could soon reduce the pace of tightening as data signaled the economy is losing momentum heading into the back half of the year. That was a day after Jerome Powell’s remarks that hikes would slow at one point, which sparked a powerful market reaction that was bashed by Fed watchers saying traders got it all wrong as tighter financial conditions are needed to vanquish inflation.

“Bad news is becoming good news,” said Michael Arone, chief investment strategist at State Street Global Advisors. “When the economy is slowing, inflation measures will likely fall. That will bring the end of the tightening cycle nearer and markets will like that.”

For LPL Financial’s Jeffrey Roach, the Fed will likely interpret the drop in real growth as confirmation to slow down the pace of tightening. “Front-loading rate hikes eventually mean smaller hikes in the near future,” he added. FHN Financial’s Chris Low said that based on Powell’s comments Wednesday, officials will not stop hiking just because the economy is shrinking. 

“They need to see real progress against inflation before they stop raising rates,” Low noted. “With that in mind, this recession will get deeper before the economy starts to heal.”

Other corporate highlights:

• Honeywell International Inc.’s profit topped estimates as a rebound in air travel and oil-and-gas investment helped spur sales.
• Hertz Global Holdings Inc. soared as the rental-car giant’s earnings beat estimates with revenue jumping on higher prices and rebound in travel.
• Harley-Davidson Inc. gained as profit and revenue beat estimates, a sign that a turnaround plan is helping the motorcycle maker overcome supply-chain headaches.
• Comcast Corp. sank after its prized internet business added no new customers last quarter, its worst performance in decades.
• Southwest Airlines Co. said it’s facing high costs and delays in aircraft deliveries from Boeing Co., tarnishing a quarter in which the carrier topped Wall Street’s profit expectations.

Here are some key events to watch this week:

• Euro-area CPI, Friday
• US PCE deflator, personal income, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.2 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.9 per cent
• The Dow Jones Industrial Average rose 1 per cent
• The MSCI World index rose 1.3 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.2 per cent
• The euro fell 0.1 per cent to US$1.0186
• The British pound was little changed at US$1.2166
• The Japanese yen rose 1.7 per cent to 134.29 per dollar

Bonds

• The yield on 10-year Treasuries declined 11 basis points to 2.67 per cent
• Germany’s 10-year yield declined 12 basis points to 0.83 per cent
• Britain’s 10-year yield declined nine basis points to 1.87 per cent

Commodities

• West Texas Intermediate crude fell 0.1 per cent to US$97.12 a barrel
• Gold futures rose 2 per cent to US$1,772 an ounce