Stocks were up modestly Friday, with the Dow Jones Industrial Average erasing its 2020 losses and the S&P 500 index on track for another record close, as investors sifted through data on U.S. consumer spending and confidence a day after the Federal Reserve announced a policy shift that would allow employment and inflation run hotter than in the past.
What are major benchmarks doing?
The Dow was up 52.49 points, or 0.2%, at 28,544.76, while the S&P 500 rose 6.21 points, or 0.2%. to 3,490.76. The Nasdaq Composite advanced 60.45 points, or 0.5%, to trade at 11,685.79.
On Thursday, the Dow rose 160.35 points, or 0.6%, to close at 28,492.27. The S&P 500 ended with a gain of 5.82 points, or 0.2%, at 3,484.55, a record close. The Nasdaq , which closed at a record on Wednesday, fell 39.72 points, or 0.3%, to close at 11,625.34.
What’s driving the market?
Stocks put in a choppy performance Thursday after Federal Reserve Chairman Jerome Powell announced, in an appearance at the annual Jackson Hole monetary symposium, that the Fed was shifting to a policy of average inflation targeting which would effectively see policy makers end the practice of preemptively hiking interest rates to stave off inflation. Instead, the Fed would allow inflation to run above its 2% target to make up for periods when inflation runs below it — signaling that a long period of ultralow interest rates lies ahead.
“Markets haven’t got overexcited by the U.S. Federal Reserve’s new stance on letting inflation run higher, despite it implying that interest rates will stay lower for longer — normally something that would benefit equities. One could argue that the Fed following this path was already expected by the market, hence why stocks haven’t surged ahead,” said Russ Mould, investment director at AJ Bell.
Cleveland Federal Reserve President Loretta Mester, in a television interview Friday, said the economic recovery from the pandemic-induced recession “is likely to be a slow one.”
“There is more pain out there that we are going to have to support the economy through,” Mester said.
In Asia, Japanese shares fell sharply, leaving the Nikkei 225 Index down 1.4% after Prime Minister Shinzo Abe said he would resign due to illness. Abe, whose term ends in September 2021, is expected to remain in office until a new party leader is elected and formally approved by parliament.
Data showed U.S. personal income rose 0.4% in July, while consumer spending was up 1.9%. Economists surveyed by MarketWatch expect had expected income to fall another 0.4% after a 1.1% drop in June. Spending was expected to show a 1.6% rise after a 5.6% increase in June.
Spending on durable goods is up 12.2%, while spending on services is down 9.3% for a net shortfall of 4.6% in total consumer demand, said Aneta Markowska, chief financial economist at Jefferies, adding that the variation in spending patterns explains “part of the disconnect between the stock market and the economy, since the former has much less exposure to the service sector than the latter.”
The final reading of the University of Michigan’s August consumer sentiment index came in at 74.1 versus a preliminary reading of 72.8 and up from 72.5 in July.
Which companies are in focus?
- Coca-Cola Co. on Friday announced a reorganization and said it would offer voluntary job cuts to 4,000 workers in the U.S., Canada and Puerto Rico. Shares were up 1%.
- Shares of HP Inc. were up 6% after reporting fiscal third-quarter sales that exceeded Wall Street estimates by $1 billion, boosted by a pandemic-inspired jump in personal-computer sales.
- Dell Technologies Inc. shares were up more than 4% after it topped profit estimates.
- Shares of Workday Inc. soared more than 11% after topping earnings forecasts, boosting guidance and announcing a new co-CEO.
- Okta Inc. shares were off 2.4% after the identity-management services company topped Wall Street estimates on its quarter and outlook.
- Moderna Inc. shares were up 0.2% after the company said it’s in talks with the Ministry of Health, Labor and Welfare of Japan to potentially sell 40 million or more doses of mRNA-127, its COVID-19 vaccine.
What are other markets doing?
The Shanghai Composite rose 1.6% and the Hong Kong’s Hang Seng Index gained 0.6%.
The Stoxx Europe 600 was off 0.6%, while U.K.’s FTSE 100 benchmark declined 0.4%.
The yield on the 10-year Treasury note was down 2.9 basis points at 0.718%. Bond prices move inversely to yields.
Gold futures were up 1.6% at $1,962.70 an ounce. U.S. oil futures fell 0.7% to $42.76 a barrel.
The ICE U.S. Dollar Index, which tracks the currency versus a basket of six major rivals, slumped 0.6%.