For the better part of a year, stock investors have shrugged off the pandemic. Rising death tolls, rampant infections and widespread economic devastation haven’t interrupted the market’s rise for long.
But lately, investors appeared increasingly unsettled by the prospect of what those outside Wall Street see as good news: a gathering consensus that strong economic growth is on the way.
Combined with climbing commodity prices and a sharp increase in yields on government bonds, the improving economic outlook had sent stocks down for five straight sessions, as investors began to worry that the Federal Reserve might cut back its support for the economy.
And on Tuesday, the S&P 500 opened down again, before a sharp turnaround snapped the streak. The reason for the rise: Jerome H. Powell, the Federal Reserve chair, reassured investors that the economy still had to make a lot more progress before the Fed would consider changing its policies.
“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Mr. Powell told the Senate Banking Committee on Tuesday.
It was enough to reverse what would have been a sixth straight day of losses for the S&P 500, which edged up a tenth of a percent. The run of down days was the longest since last February, although the total loss was a modest 1.4 percent.
Mr. Powell soothed the nerves of pessimists who worried that a policy change could happen sooner rather than later, said Scott Clemons, chief investment strategist for private banking at Brown Brothers Harriman, an investment bank.
“Chairman Powell, in his testimony to the Senate Banking Committee today, seems more like the cool dad who is willing to let the party go on for a while before shutting down the bar,” Mr. Clemons said.
The emerging consensus that growth — and perhaps inflation — will be stronger than expected just a few weeks ago has been provoked by prices in key financial markets.
The yield on the 10-year Treasury note, a cornerstone of financial markets by which the risk and return on most other investments is measured, has jumped to nearly 1.40 percent in recent days, touching the highest level in a year. Expectations for economic growth, inflation and monetary policy are the main drivers of bond yields.
Costs for key commodities — seen as a barometer of inflation — are also surging. Prices for benchmark American crude oil are up nearly 17 percent this month, with the price of a barrel of West Texas crude now above $61. The price of copper, a key material for home construction and automobiles, is up 15 percent in February.
Recent economic data in the United States has also been stronger than expected, with updates on consumer confidence, retail sales and industrial production arriving better than expected over the last week — all as the national Covid-19 vaccination effort continues to gain traction.
On top of all that, President Biden and Democratic leaders in Congress are pushing for a large-scale stimulus plan. Democrats are determined to move the measure forward by using a parliamentary tactic in the Senate known as reconciliation, which would allow the bill to move to the president’s desk without the bipartisan support that legislation normally requires. That has sharply raised the odds of passage for a significant share of the administration’s $1.9 trillion proposal.
The increasing chances of another big shot of stimulus have prompted economists to raise their projections for economic growth.
Last week, economists at JPMorgan raised their 2021 real growth expectations for the United States to 6.4 percent in the fourth quarter, up from 5.3 percent, as they predicted the stimulus package would total $1.7 trillion. Goldman Sachs economists, expecting a stimulus package of $1.5 trillion and additional spending on infrastructure, say the American economy will grow 7 percent in 2021. And at Morgan Stanley, economists believe that the stimulus package will land north of $1 trillion and that fourth-quarter growth will be up 7.6 percent from a year earlier.
The sense that the economy is quickly approaching the end of the tunnel had investors fretting about the Fed’s changing course sooner than they had anticipated.
Foremost among their concerns: If inflation picks up steam, the Fed could cut back on its bond-buying and other policies that have supercharged the market’s rise of more than 70 percent since March.
Russ Koesterich, portfolio manager of the BlackRock Global Allocation Fund, said that the Fed had been the driving force behind the rally, and that investors were keenly aware of its movements. Like Mr. Clemons, he said they were not looking for the party to end just yet.
“Investors are very sensitive to the possibility that maybe the punch bowl gets removed a little bit faster than people might have thought,” he said.