Wall Street leaps nearly 3% as markets worldwide rally

By STAN CHOE, Associated Press Business Writer

NEW YORK (AP) — U.S. stocks are leaping Wednesday as a worldwide rally comes back around to Wall Street following updates from President Donald Trump about his plans for the Federal Reserve and his trade war that investors found encouraging.

The S&P 500 was 2.9% higher in early trading, coming off a big gain Tuesday that wiped out a loss that was nearly as big on Monday. The Dow Jones Industrial Average was up 967 points, or 2.5%, as of 9:35 a.m. Eastern time, and the Nasdaq composite was 3.7% higher.

Wall Street’s gains followed strong moves higher for stocks across much of Europe and Asia. They also continue a dizzying, up-and-down run for markets as investors struggle with how to react to so much uncertainty about what Trump will do with his economic policies. Even after Wednesday morning’s big gain, the S&P 500 remains 11.5% below its record set earlier this year after briefly dropping roughly 20% below.

That’s why one of the few predictions many along Wall Street are willing to make is only that sharp swings will continue for a while. The market will “more likely than not continue to be dictated by Trump’s latest whims regarding tariffs and trade,” said Tim Waterer, chief market analyst at KCM Trade.

The market’s latest move is up in large part because Trump said late Tuesday that he has “no intention” to fire the head of the Federal Reserve. Trump had been angry with Jerome Powell, whom Trump had called “a major loser,” because of the Fed’s hesitance to cut interest rates.

While cutting rates could give the economy a boost, it could also put upward pressure on inflation. Economists say Trump’s tariffs are likely to slow the economy and raise inflation, at least briefly.

Trump’s tough talk frightened Wall Street because the Fed is supposed to act independently, without pressure from politicians, so that it can make decisions that may be painful in the short term but are best for the long term. Most legal scholars agree that Trump can’t fire Powell from the Fed’s board of governors, and there is no legal precedent for doing so. However, there is less agreement over whether a president can remove him as chair.

Trump may have recognized the market’s fear about a move against Powell. He may also be looking to keep around someone that Trump could blame later if the economy does fall into a recession.

“Indeed, if the Fed cuts its policy interest rates aggressively, Trump would have little excuse for a recession apart from the pugnacity of his tariff policies,” said Thierry Wizman, a strategist at Macquarie.

Markets also rose after Trump said late Tuesday that U.S. tariffs on imports coming from China will likely come down “substantially” from the current 145%. “It won’t be that high, not going to be that high,” Trump said.

The hope along Wall Street has been that Trump may lower his tariffs after negotiating trade deals with other countries. If he brings tariffs down by enough and quickly, investors believe a recession could be averted.

Trump’s comments also had a big effect on the bond market, where Treasury yields eased sharply. It’s a turnaround from earlier this month, when spiking Treasury yields were raising fears that Trump’s actions were scaring away investors and weakening the U.S. bond market’s reputation as one of the safest places to park cash.

The yield on the 10-year Treasury fell to 4.27% from 4.41% late Tuesday.

On Wall Street, Tesla helped lead the way by revving 4.7% higher after CEO Elon Musk said he’ll spend less time in Washington and more time running his electric vehicle company. Tesla on late Tuesday reported a big drop in profits, and it has been struggling because of backlash against Musk’s efforts to lead cost-cutting efforts by the U.S. government.

In stock markets abroad, indexes jumped 2.2% in France, 2.4% in Hong Kong and 1.9% in Japan. Stocks in Shanghai were an exception, where they dipped 0.1%.

AP Business Writers Yuri Kageyama and Matt Ott contributed.