Economic news

Dow Slumps to Kick off Final Session of Month

U.S. stocks were mostly lower to start Monday’s trade as Wall Street attempts to close out a strong performance in a seasonally lackluster month, ahead of what’s likely to be a turbulent patch for investors heading into autumn amid the COVID-19 pandemic and ahead of crucial 2020 elections.

How are stock benchmarks performing?

The Dow Jones Industrial Average fell 175 points, or 0.6%, to 28,477. The S&P 500 was down 4 points, or 0.1%, to 3,504, but established an all-time high of 3,509.73. The Nasdaq Composite rose 30 points, 0.3%, to 11,725, setting a new intraday record of 11,741.30 at the start of Monday.

On Friday, the Dow noted a weekly gain of 2.6%, the S&P 500 added 3.3%, and the Nasdaq Composite Index was up 3.4%. All three indexes have gained at least 7% so far in August, continuing a trend of August being the best month for stocks in an election year.

What’s driving the market?

The S&P 500 and the Nasdaq are aiming for the best August return since 1984, with much of the gains coming amid growing hope for vaccines and treatments for the COVID-19 pandemic that has debilitated economies across the globe. Both major benchmark indexes have continued to notch records as risk assets shrug off the economic damage wrought by the coronavirus.

Adding to the optimism around potential coronavirus cures, the Food and Drug Administration’s commissioner, Stephen Hahn, said that the U.S. could fast-track a trio of vaccines. The FDA boss, in an interview with the Financial Times over the weekend, insisted that there is a safe way to make a vaccine available before the end of final stage trials—potentially by issuing an emergency authorization for use by certain groups rather than a blanket approval.

Still, the final trading day in August comes ahead of a seasonally weak month for stocks in September, which may be amplified by worries about a resurgence of COVID-19 in the fall and winter and turbulence fostered the U.S. presidential election race between former Vice President Joe Biden and incumbent President Donald Trump.

Trading in financial markets on Monday, following an important declaration by the Federal Reserve last week that it would use an average inflation target as a part of its monetary-policy, which implies that the central bank would pursue lower rates for a longer period even if the unemployment rate, which is historically associated with rising price pressures, started to fall substantially.

“Jerome Powell’s soothing tones are continuing to provide that calming reassurance for investors, even as we head into what could be a rollercoaster ride in the final months of the year,” wrote Craig Erlam, senior market analyst at Oanda in a research note.

“A vaccine is on the way and perhaps Biden wouldn’t be such a bad thing for the markets after all...I mean, none of these things are guaranteed by any stretch of the imagination and the most important of them is far from it,” he added.

Fed Vice Chairman Richard Clarida defended the central bank’s shift to average inflation targeting on Monday. He said the link between inflation and the unemployment rate, known to economists as the Phillips Curve, began to lose its predictive power more than a decade ago.

Meanwhile, China on Friday unveiled new restrictions on artificial-intelligence technology exports that could further complicate the sale of TikTok’s U.S. operations as the Trump administration tries to quickly find a buyer. Microsoft Corp., Walmart and Oracle Corp. have all been reportedly interested in acquiring pieces of the popular social-media company.

The latest development with the ByteDance-owned TikTok highlights growing worries about tensions between Beijing and Washington.

Monday also marks key changes to the Dow precipitated partly by Apple Inc.’s 4-for-1 stock split, which prompted the Dow’s owners, S&P Dow Jones Indices, to add Inc., Amgen Inc. and Honeywell International Inc. to the index, replacing iconic Exxon Mobil Corp., Pfizer Inc, and Raytheon Technologies Corp. 

Separately, investors may take cues from recent revealed purchases by luminary investor Warren Buffett, whose Berkshire Hathaway conglomerate disclosed stakes in Japanese investment firms Mitsubishi Corp., Mitsui & Co., Sumitomo Corp., Itochu Corp. and Marubeni Corp.  just before the Tokyo stock market opened Monday.

Which stocks are in focus?
  • Shares of Tesla Inc. rose 3.5% Monday, amid the electric car maker’s 5-for-1 stock split.
  • Shares of Apple rallied 2.6% amid its 4-for-1 stock split.
  • Shares of Vir Biotechnology Inc. was up 0.7% when the company and GlaxoSmithKline said they had begun dosing patients in a clinical study for their experimental COVID-19 antibody treatment.
  • said Monday that it has “confidentially” submitted a draft registration with the Securities and Exchange Commission related to a proposed public offering of Class A common stock.
How did other markets fare?

In Asia, China’s CSI 300 fell 0.6% and the Hong Kong’s Hang Seng shed 1%. The Stoxx Europe 600 was down 0.2%, while U.K.’s FTSE 100 benchmark lost 0.6%.

The yield on the 10-year Treasury note was flat at 0.729%. Bond prices move inversely to yields.

Gold edged 0.1% higher to $1,977.70 an ounce. West Texas Intermediate crude for October delivery rose 0.5% to $43.18 a barrel on the New York Mercantile Exchange.

The ICE U.S. Dollar Index, which tracks the currency versus a basket of six major rivals, fell 0.2% to extend its decline this year.

Source: Marketwatch

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