Wall Street drifts toward record closing highs in risk-on session
Wall Street advanced on Wednesday, with chipmakers and financials setting the S&P 500 and the Nasdaq on course to once cinch all-time closing highs as investors look to the upcoming Jackson Hole Symposium for clues regarding the Federal Reserve’s timeline for policy tightening.Investors also heard from St. Louis Federal Reserve Bank President James Bullard, in a webinar interview with MarketWatch.
With few negative catalysts to dampen the risk-on sentiment, all three major U.S. indexes crept modestly higher.
“We’re in a ‘Goldilocks’ scenario with stocks right now, and the Fed is likely to remain accommodative,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. “By the same token we’ve had strong corporate earnings with forward guidance being lifted.”
“And while in July consumer sentiment weakened, there’s confidence that the consumer is going to continue to push things forward,” Pursche added.
Rising U.S. Treasury yields boosted rate sensitive financials, and sectors that stand to gain most from economic revival - smallcaps, chips and transports - were outperforming the broader market.
Days after the Food and Drug Administration gave full approval to the Pfizer-BioNTech COVID-19 vaccine, companies and institutions are moving toward either mandated inoculation, or penalization for those who forego the shot.Bullard’s interview will be followed by the minutes of the Federal Reserve’s July 27-28 policy meeting due at 2 p.m. ET. The minutes are likely to be poured over for clues to the timing of the central bank’s planned tapering of its monthly asset purchases of $120 billion in Treasurys and mortgage-backed securities.
News reports earlier this week said policy makers were nearing an agreement to begin scaling back purchases by November, with The Wall Street Journal reporting some policy makers were looking to end purchases by mid-2022.
A formal announcement on tapering is expected at either next week’s symposium on monetary policy in Jackson Hole, Wyoming, or the Fed’s September meeting.
Markets have been wobbly since a string of record closes for the S&P 500 index and the Dow, representing a notable comeback for equities that had looked wounded by questions about the impact of the spread of the coronavirus delta variant in the world’s two largest economies, the U.S. and China.
Monetary policy uncertainty, questions about corporate earnings growth in coming quarters, and brewing troubles in the Middle East, highlighted by the takeover of Afghanistan by the Taliban, has created some headwinds for bullish investors.
Still, some note that “it is quite impressive that U.S. markets are still within touching distance from record highs, defying an imminent withdrawal of Fed liquidity as well as a worsening delta outbreak in America and Asia, even with valuations being so stretched,” wrote Marios Hadjikyriacos, senior investment analyst at XM, in a note.
“This resilience might boil down to expectations that the Fed will be infinitely cautious in reining back stimulus and that Congress will put a floor under economic growth by delivering another multi-trillion round of spending,” he said.
“Monetary policy will still be super-loose after tapering and the fiscal taps aren’t closing.”
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In U.S. economic data Wednesday, home builders started construction on homes at a seasonally-adjusted annual rate of 1.53 million in July, representing a 7% decrease, the U.S. Census Bureau reported. Meanwhile, permitting for new homes occurred at a seasonally-adjusted annual rate of 1.64 million, up 2.6% from June and 6% from a year ago.
In COVID news, the Biden administration on Wednesday authorized that most Americans, as soon as this Friday, can get a COVID-19 booster shot eight months after being fully vaccinated.
The news comes as the daily average of new cases was up 52% from two weeks ago, and 4.5 times the average of 31,138 a month ago, according to a New York Times tracker. The daily average of deaths slipped to 696 on Tuesday from 704 on Monday, while hospitalizations increased to 83,291 from 82,519 on Monday, the most since Feb. 11.
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Which companies are in focus?
Shares of Target Corp. fell 1.5% Wednesday, despite results that topped earnings and revenue expectations as it showed a slowdown in growth in shopping activity from the COVID-19 highs.
Krispy Kreme Inc. late Tuesday said its losses widened in the spring, but executives blamed the decline on costs associated with returning to the public market and established annual guidance that surpassed analysts’ estimates. Shares were off 1.5% on Wednesday.
Shares of Lowe’s Cos. LOW rose 10% Wednesday, after the home improvement retailer reported fiscal second-quarter profit, sales and same-store sales that beat expectations, and provided an upbeat full-year outlook.
Children’s Place Inc. PLCE shares were down 4.6% after the kids clothing and accessories retailer reported second quarter revenue that missed Street expectations.
TJX Cos. TJX reported fiscal second-quarter net income of $785.7 million, or 64 cents per share, after a loss of $214.2 million, or 18 cents per share, last year. Its stock was up 5.3%.
Shares of Lumentum Holdings Inc. LITE rose 2.5% Wednesday, after the optical networking company swung to a fiscal fourth-quarter profit and reported revenue that rose above expectations, while providing an upbeat outlook.
Chili’s parent Brinker International Inc. EAT saw shares rose 2.7% after the restaurant company reported fiscal fourth-quarter earnings that missed expectations.
Lululemon Athletica Inc. LULU said Wednesday that it has invested in Genomatica, a company that makes sustainable materials. Shares were up 0.9%.
Analog Devices Inc. ADI reported Wednesday record fiscal third-quarter profit and revenue that rose above expectations, as gross margin improved, while the fourth-quarter outlook was in line with forecasts, and the chipmaker’s stock rose 0.4%.
How are other assets faring?
The yield on the 10-year Treasury note TMUBMUSD10Y was 3 basis points higher at 1.28%. Yields and debt prices move in opposite directions.
The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was virtually unchanged, up less than 0.1% on the session.
Oil futures traded modestly lower, with the U.S. benchmark CL. 1 down 1.3% at $65.49 a barrel on the New York Mercantile Exchange. Gold futures GC00 declined too, down 0.2% at $1,784.10 an ounce.
In European equities, the Stoxx Europe 600 SXXP rose 0.1%, while London’s FTSE 100 UKX declined by 0.2%.
In Asia, the Shanghai Composite SHCOMP added 1.1% and Japan’s Nikkei 225 NIK rose 0.6%, while Hong Kong’s Hang Seng Index HSI closed 0.5% higher on the session.