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Dow finishes more than 250 points higher, Nasdaq climbs 1.9% after Fed Chair Powell says inflation is declining

Pro Picks: Watch all of Tuesday's big stock calls on CNBC
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Pro Picks: Watch all of Tuesday's big stock calls on CNBC

Stocks advanced Tuesday following Federal Reserve Chair Jerome Powell's comments indicating inflation has started easing.

The Dow Jones Industrial Average added 265.67 points, or 0.78%, to finish at 34,156.69. The S&P 500 added 1.29%, to close at 4,164.00 points. The Nasdaq Composite posted the biggest daily gain, climbing 1.9% to end at 12,113.79.

The major indexes ricocheted during and shortly after his remarks in a midday conversation at The Economic Club of Washington, D.C. At one point, the Dow gained more than 275 points, while the S&P 500 and Nasdaq Composite each traded up more than 1%. Those gains came as investors cheered Powell's comments on disinflation, hoping they indicated the central bank could continue slowing on its interest rate hike campaign.

"The disinflationary process, the process of getting inflation down, has begun and it's begun in the goods sector," Powell said. "But it has a long way to go. These are the very early stages of disinflation."

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S&P 500, 1-day

Powell said later in the discussion that the Fed could be forced to hike more aggressively, which could have briefly spooked investors. The three major indexes turned briefly negative after initially popping on Powell's remarks before settling in the green.

"The reality is we're going to react to the data," Powell said. "So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in."

His Tuesday comments follow Powell's press conference last week after the Fed raised interest rates, where he said that the central bank believes it's making solid progress in bringing down inflation. Those comments were viewed as dovish by investors and set off a rally in stocks.

"The market's doing the best that it can to try to discount two very different scenarios, both of which are really driven by what the Fed is going to do," said Dave Grecsek, managing director of investment strategy and research at Aspiriant. "The scenario is we get a recession or do we not, and it's highly dependent, in the market's eyes, on how quickly the Fed nears the end of its rate hike campaign."

Lea la cobertura del mercado de hoy en español aquí.