After Federal Reserve Chairman Jerome Powell began two days of testimony in which a significant rise in inflation was a prominent focus, U.S. market indexes closed largely higher, approaching record territory, on Wednesday. Despite recent record high job vacancies, the Fed chairman noted the labor market, while improving, still has a long way to go in rebounding from the pandemic.
On Wednesday, investors saw the 10-year Treasury yield drop and absorbed another round of quarterly results from the country’s top banking institutions. How did the stock market’s benchmarks fare?
After initially trading in the red, the Dow Jones Industrial Average DJIA, +0.13 percent climbed 44.44 points, or 0.1 percent, to 34,933.23.
After setting a new intraday all-time high at 4,393.68 towards the start of the session, the S&P 500 index SPX, +0.12 percent gained 5.09 points, or 0.1 percent, to close at 4,374.30.
After trading above its July 12 closing high of 14,733.24, the Nasdaq Composite Index COMP, -0.22 percent lost 32.70 points, or 0.2 percent, to finish at 14,644.95.
The Dow Jones Industrial Average dropped 107.39 points, or 0.3 percent, to 34,888.79; the S&P 500 index dropped 15.42 points, or 0.4 percent, to 4,369.21; and the Nasdaq Composite dropped 55.59 points, or 0.4 percent, to 14,677.65. The Russell 2000 index RUT, -1.63 percent of small-capitalization companies fell 1.9 percent. What was the market’s driving force? On the first of two days of testimony before Congress on the status of the economy, loose monetary policies, surging U.S. housing prices, and the rising cost of living, all eyes were on Fed Chair Powell. Powell acknowledged that low mortgage rates and a scarcity of homes contributed to the affordability crisis, but added that the “reckless” and “irresponsible lending” practices that arose in the run-up to the 2008 financial crisis “are not happening, at least so far.” Read more: Powell dismisses a direct link between the Fed’s mortgage bond purchases and the rise in property prices. Rising house prices, according to the Fed chairman, highlight the “uneven” nature of the US economic recovery, while more gains in the job market are required for the central bank to begin tightening monetary policy. Powell also stated that talks regarding a possible path to gradually tapering the Fed’s asset-purchase program, which is presently worth $120 billion per month, will continue in the coming months. Concerns about inflation resurfaced on Wednesday after the June producer-price index came in higher than predicted, confirming that inflation is rising as the economy recovers from the COVID outbreak. Last month, the PPI increased by 1%, exceeding experts’ expectations of a 0.6 percent increase. Wholesale inflation increased to 7.3 percent in the last 12 months, up from 6.6 percent in May. The PPI report came on the heels of higher consumer price inflation data released on Tuesday, which showed that prices grew 5.4 percent in the year to June, the highest rate since 2008, when oil hit a record high of $150 per barrel. Importantly, in his semiannual presentation to lawmakers on Wednesday, the central bank director said he was keenly monitoring the current high pace of inflation and that “we would surely adjust our policy” if rising costs uprooted his expectations. The Treasury market has given them a vote of confidence, according to Robert Tipp, chief investment strategist at PGIM Fixed Income, in response to Powell’s pledges that the Fed will act, including hiking rates if necessary, if runaway inflation persists. According to MarketWatch, “we are over the top point of inflation worry, and Treasury rates should begin to look ahead” to a slower pace of inflation this year. Tipp’s earlier projection that the benchmark Treasury rate will end 2021 below 1.5 percent, in part as markets react to expectations of slower, longer-term growth, was supported by the 10-year Treasury yield’s drop on Wednesday. Most Fed members, including Powell, have been unconcerned about the recent spike in inflation, describing it as “likely short-lived.” The CPI reading, according to San Francisco Fed President Mary Daly, is just part of a brief “pop” in inflation that won’t endure. During Powell’s hearing on Wednesday, the central bank released its monthly Beige Book study on the economy, which showed that the US is growing faster, aided by consumer spending, but that the recovery is being slowed by significant labor and supply shortages. Another source of concern has been the rise in COVID cases in the United States and around the world, owing to the highly transmissible delta form, which has fueled fears of unvaccinated adults infecting children. Corporate earnings resumed on Wednesday, with BlackRock BLK, -3.06 percent, and Bank of America BAC, -2.51 percent posting revenue and profit that exceeded expectations. In Washington, President Joe Biden expressed optimism about a budget accord reached late Tuesday by top Senate Democrats, which calls for investing $3.5 trillion on “human infrastructure,” climate change measures, and other Democratic goals. Separately on Tuesday, a bipartisan group of senators continued to work on a third bill, which would spend approximately $1 trillion on roads, water systems, and other infrastructure projects, a priority for Biden. Which businesses were the subject of the investigation? Estee Lauder Cos. EL, +1.85% shares gained 1.9 percent on Wednesday after Raymond James upgraded the company’s stock to a “strong buy” rating, citing improved e-commerce sales.
Bank of America Corp. BAC, -2.51 percent shares dipped 2.5 percent on Wednesday after the moneycenter bank announced a second-quarter profit that above estimates but revenue that fell short of expectations, owing to shortfalls in the consumer banking and global markets divisions.
The stock of BlackRock Inc. BLK, -3.06 percent dropped 3.1 percent after the company reported second-quarter profit and revenue that above forecasts, with assets under management increasing 30 percent and net inflows topping $80 billion.
Shares of Eli Lilly & Co. LLY climbed 0.5 percent after the company said on Wednesday that it is buying the remaining shares of Protomer Technologies in a deal for more than $1 billion based on future development and commercial milestones.
Verso Corp. VRS, a specialty and packaging paper and pulp manufacturer, stated on Wednesday that it had received an unsolicited bid of $20 per share in cash from Atlas Holdings LLC. The stock increased by 2%.
After the estimated pricing and quantity of shares to be issued in the California-based Ophthalmology and optometry company’s first public offering were boosted, Sight Sciences Inc. SGHT is now scheduled to go public with a valuation of more than $1 billion.
According to a Bloomberg News article published late Tuesday, Apple AAPL, +2.41% shares soared 2.4 percent after the company requested suppliers to increase manufacturing of its next-generation iPhones by 20%.
What happened to the other assets?
The yield on the 10-year Treasury note TMUBMUSD10Y, 1.341 percent, decreased 5.9 basis points to 1.356 percent on Wednesday.
The ICE U.S. Dollar Index DXY, which compares the currency to a basket of six main competitors, fell 0.4 percent.
Oil futures ended the day substantially lower, with the US benchmark CL00 down 2.8 percent to $73.13 per barrel. Gold futures GC00 increased by 0.8 percent to $1,825 an ounce.
The Stoxx 600 Europe SXXP finished 0.1 percent down in European markets. The FTSE 100 UKX in London fell 0.5 percent.
In Asia, Hong Kong’s Hang Seng Index HSI declined 0.6 percent, Shanghai’s Composite SHCOMP fell 1.1 percent, and Japan’s Nikkei 225 NIK finished 0.4 percent lower./n
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