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S&P 500 hits record, Dow jumps 200 points after Biden stays with Powell to lead the Fed

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Shares rose Monday after President Joe Biden selected Jerome Powell to continue to lead the Federal Reserve over Fed Governor Lael Brainard. The move reassured investors worried about changing central bank governors as the country’s economy tries to get out of the Covid pandemic and tackle inflation levels not seen in three decades.

The Dow Jones Industrial Average rose 210 points. The S&P 500 rose 0.2% to hit a record intraday high but fell in midday trading. The Nasdaq Composite lost 0.8% after hitting its own all-time high at the start of the session.

Powell, a former private equity manager, cut interest rates to near zero and made emergency asset purchases in March 2020 to halt the market during the first wave of the Covid-19 pandemic and help the financial system during a strong one Slowdown in operational business activity. He also led a landmark reassessment of the Fed’s inflation target range during the Covid crisis.

“It seems that the markets are responding positively to the continuity signal. Continuity will be critical during this potentially difficult period of recovery, where inflation is high and sticky, demand growth is strong but cooling and the supply of capital and labor is gradually picking up again, ”said Greg Daco, chief US economist at Oxford Economics .

Powell’s renomination comes as inflation has exceeded expectations in recent months, leading the Fed to withdraw its predictions that the price hike that accompanied the reopening of the economy would be “temporary”. Some critics say the Fed is waiting too long to tighten monetary policy.

The central bank began slowing its bond purchases in November, which is its first major rollback to its contingency programs from 2020, and hinted that it could accelerate that process early next year.

Bank stocks and government bond yields rose after the White House announced the Fed’s decision. JPMorgan’s shares were up 2.7% while Morgan Stanley was up more than 3%. The rise in interest rates appeared to weigh on some technology stocks whose future earnings are less attractive to investors with higher yields.

Brainard, considered Powell’s main competitor and favored by Washington progressives for her stance on banking regulation and climate change, is nominated for a vice chairmanship of the central bank, but not for the top regulatory role many had expected.

“The fact that Brainard was not nominated for vice chairman for the oversight role could also be a driving factor for positive market momentum as there were some concerns that Brainard would push for tightening of banking regulation in this role,” said Daco.

Powell, a Republican, was first nominated to the Fed Board of Governors a decade ago by President Barack Obama and rose to the top position under President Donald Trump. His ties to the Republican Party and earlier confirmation of the Fed’s top position have been seen by some as reasons why he might be easier to confirm than another candidate in a narrowly divided Senate.

“I think that’s a decent 1-2 combination,” UBS director of ground operations Art Cashin said on Squawk on the Street. “I think that’s what they wanted to achieve, not a break. I think the market reaction you are seeing is that the market is happy without a break.”

Elsewhere, Tesla shares rebounded, gaining more than 4% after CEO Elon Musk said the electric vehicle maker’s Model S plaid could hit China by spring 2022.

Moderna stocks continued their upward momentum, rising 4.8% in early trading after the FDA released the company’s booster shot to all US adults last week.

On the flip side, Activision Blizzard fell 2.1% after reported CEO Bobby Kotick said he would consider stepping down if he can’t improve the company culture. The news came after reports that Kotick was known to have committed sexual misconduct within the organization. The Nasdaq Composite was impacted by declines on Netflix and Etsy.

Covid news also weighed on market sentiment when Chancellor Angela Merkel warned the country was seeing the virus spike.

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The S&P 500 ended a successful week up 0.3% on a series of excellent earnings reports from major retailers and strong US retail data. The tech-heavy Nasdaq Composite was up 1.2% last week. However, the blue chip Dow lost 1.3% over the period.

Stocks have made gains through Thanksgiving week that may set the stage for a year-end Christmas rally.

Since 1950, the last five trading days in November have traditionally been positive, according to Sam Stovall, chief investment strategist at CFRA. Meanwhile, there is a two-thirds chance the market will rise the day before Thanksgiving Day and a 57% chance the day after the holiday, the strategist said.

US markets will remain closed on Thursday, Thanksgiving Day. The exchange closes early Friday at 1 p.m. ET.

– CNBC’s Patti Domm contributed to the coverage.

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