The back of a man's head looking at a ASX sign

How do this morning’s stock gains compare to Tuesday’s losses?

A few days ago, the US stock market saw huge declines over fears that the US Federal Reserve would raise interest rates and trigger a recession.

Today, it raised interest rates by three-quarters of a percentage point, with the key interest rate target range from 1.5 to 1.75 percent — which is exactly what investors feared.

But we didn’t see another dark day on Wall Street thanks to that news — in fact, the US stock market index, the Dow Jones, was up 1 percent by closing.

And when the Australian stock market opened this morning, it was up more than 1 percent in the first hour of trading.

Why did the stock market bounce back when interest rates went up?

Partly because they did not rise higher than expected.

But also because, while it has been suggested that the next rate hike could be by a half or three quarters of a percentage point, Federal Reserve Chief Jerome Powell proposed future rate hikes won’t be as steep:

“Today’s 75 basis point increase is an unusually large one and I don’t expect moves of this magnitude to be common.”

So that would have given investors more confidence, which is really fueling the stock market.

And because what happens in the US stock market affects what happens in our stock market operator, the Australian Securities Exchange (ASX), local stocks rose as well.

Did this wipe out the ASX losses from earlier this week?

No.

On Thursday, the ASX200, a measure of how well the Australian stock market is doing based on the top-performing 200 companies, fell despite morning gains.

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