Traders work on the trading floor of the New York Stock Exchange in New York, USA, 19 August 2021.

Wang Ying | Xinhua News Agency | Getty Images

Shares rose on Friday, heading for a successful week as Federal Reserve Chairman Jerome Powell prepared the markets for the central bank to pull back on some of its monetary stimulus and said it will likely begin its monthly bond purchases in the amount of $ 120 billion this year.

The Dow Jones Industrial Average gained 223 points, or 0.5%. The S&P 500 rose 0.2% to hit a record 4,505.16. The Nasdaq Composite rose 0.1% to hit a record 15,102.70.

The three most important stock averages will all close the week in the green. The Dow is up 0.9% since weekday, while the S&P 500 is up 1.4% and the Nasdaq Composite is up 2.5%.

The 10-year government bond yield featured in Powell’s speech this week eased slightly after the Fed chief made it clear that rate hikes would not follow immediately after the tapering ended.

“The timing and pace of the impending reduction in bond purchases will not be a direct signal of the timing of the rate hike, for which we have formulated a different and much more stringent test,” said Powell.

Powell also said inflation is solidly around the central bank’s 2% target rate, one of the targets of the Fed’s dual mandate. However, it “has a lot of ground to overcome” to meet its other goal of maximum employment, although there has been “clear progress” along the way, Powell added. Based on statements from other Fed officials, a reduction in the announcement could be made at the Fed meeting on September 21-22.

The financial market reaction on Friday is a sign that the central bank has so far been successfully preparing investors for their monthly $ 120 billion in 2013. Markets seem relieved that the Fed is not planning to hike rates anytime soon, said Michael Arone, Chief Investment Strategist for the US SPDR business at State Street Global Advisors.

“Rate hikes are far, far away and investors are excited about them,” he said. “I think Powell deserves credit for mastering asset reductions and avoiding a tantrum. The market appears to be well prepared for the reductions to begin.”

The speech also signaled that the Fed is not nearly as nervous about prices as some in the market and in Washington, said Adam Crisafulli, founder of Vital Knowledge.

“Powell spends most of the speech addressing inflation concerns,” he said of the speech, adding that Powell “is addressing concerns about rate hikes and telling markets that the threshold for rate hikes is much higher than a cut.”

Cornerstone Wealth’s chief investment officer, Cliff Hodge, noted that Powell held firm to the Fed’s view that increased inflation is temporary, despite the fact that the Department of Commerce on Friday reported the largest year-on-year increase in consumer spending since 1991. The PCE index rose 4.2% in July compared to the same point in the previous year and 0.4% compared to the previous month.

“He successfully threaded the needle to communicate that the taper is likely to begin this year while reiterating the idea that the taper is not a tightening,” Hodge said. “We believe that this September, subject to further setbacks from the Delta variant, is likely to result in a number of blowout jobs and set the table for the official reduction announcement at the FOMC meeting in September.”

Energy stocks led the S&P higher after being hit hardest on Thursday. Occidental Petroleum was up 6%, APA Corp and Cimarex Energy were up 5%, and Marathon Oil was up 4%.

Workday’s shares were up 11% after reporting strong earnings and subscription income currently, up 23% year over year. Gap rose nearly 2% after the apparel retailer’s quarterly earnings report beat sales and bottom line, while Peloton stocks fell after the exercise equipment maker’s fourth quarter financial results missed Wall Street’s estimates. The peloton fell 8%.

The three major US indices closed the regular trading session lower on Thursday. The Dow had a four-day winning streak while the S&P 500 and Nasdaq Composite both broke a five-day winning streak.

Market participants also observed new developments in Afghanistan that appeared to weigh on investor sentiment. The Pentagon confirmed Thursday that explosions near Hamid Karzai International Airport in Afghanistan killed 13 US soldiers and injured 18.

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“The markets don’t like uncertainty and uncertainty in Afghanistan is high and feels like it is rising,” said Bob Doll, chief investment officer of Crossmark Global Investments.

The indices are on track to end the month higher. The Dow was up 1.4% in August. The S&P 500 is up 2.5% this month and the Nasdaq Composite is up 2.9%.

– Jeff Cox, Patti Domm, and Yun Li contributed to this report.