Stocks rallied and bond yields fell, with traders awaiting Jerome Powell’s keynote for clues on how much further the Federal Reserve will pump the brakes on the economy to bring inflation back under control.

The S&P 500 closed near session highs, trimming a selloff that knocked down the market earlier in the week. Following the slowest trading day of 2022 for US equities, volume was once again below average. Megacaps like Apple Inc. and Amazon.com Inc. jumped, though Tesla Inc. whipsawed as its stock split took effect. Treasury 10-year yields traded near 3 per cent, while the dollar slipped.

Investors were mostly unfazed by hawkish comments from Fed officials gathering for the annual conference in Jackson Hole, Wyoming. Powell’s speech at 10 a.m. Washington time Friday will mark the highlight of an event that’s been used for making key announcements. The Fed’s boss is widely expected to restate his resolve to keep tightening monetary policy to fight inflationary spirals.

“We are not convinced Jackson Hole tomorrow will be a negative market shock because expectations are hawkish while exposure still low,” said Dennis DeBusschere, founder of 22V Research. “We thought the market correction would be leading into Jackson Hole and that has largely played out. We are neutral short term.”

Traders will also be closely watching out for any signals about the pace of the Fed’s balance-sheet runoff -- known as quantitative tightening -- which gets up to full speed in September at a monthly clip of up to US$95 billion. While some strategists are convinced the unwinding could pose a threat to equities, others say that there’s still plenty of liquidity left from stimulus measures to prop up the market.

In fact, stocks surged 18 per cent during QT from October 2017 through July 2019, Ed Yardeni, president of Yardeni Research, wrote in a recent note. Meantime, a survey conducted by DeBusschere’s firm showed that over half of the respondents believe QT will push Treasury yields higher, 32 per cent say they will be unchanged and only 12 per cent bet on a drop.

The Fed “should not blink” as it addresses hot inflation, and Powell faces a “huge” challenge finding ways to cool price growth without damaging the economy, Mohamed El-Erian, chief economic adviser at Allianz SE, told Bloomberg Television.

“We are confident that Powell’s commentary will be void of any major-market moving surprises,” said Robert Schein, chief investment officer at Blanke Schein Wealth Management. “We expect Powell to continue to emphasize that the Federal Reserve’s decisions are data dependent and should Friday’s PCE inflation reading top expectations, that will firmly quash any expectations of a policy pivot.”

Investors also waded through data showing the government’s main measures of US growth pointed in different directions in the first half of 2022, adding to the ongoing debate on the health of the economy. Another report showed applications for unemployment benefits fell for a second week, suggesting employers are holding on to workers despite growing uncertainties.

In corporate news, China stocks listed in the US rallied as talks between both countries to avoid delisting of companies on the New York Stock Exchange ramp up. Snowflake Inc. surged as an upbeat forecast reassured Wall Street that companies are still investing in their technology systems to boost efficiency. Peloton Interactive Inc. tumbled as a bleak outlook renewed concerns about the fitness company’s comeback plan.

What to watch this week:

• Fed Chair Powell speaks at Jackson Hole, Friday
• US personal income, PCE deflator, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.4 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.7 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 rose 0.1 per cent to US$0.9977
• The British pound rose 0.3 per cent to US$1.1835
• The Japanese yen rose 0.4 per cent to 136.52 per dollar

Bonds

• The yield on 10-year Treasuries declined eight basis points to 3.02 per cent
• Germany’s 10-year yield declined five basis points to 1.32 per cent
• Britain’s 10-year yield declined eight basis points to 2.62 per cent

Commodities

• West Texas Intermediate crude fell 1.8 per cent to US$93.16 a barrel
• Gold futures rose 0.5 per cent to US$1,770.50 an ounce