Week 34 in Brief
- U.S. stocks closed higher Friday and booked weekly gains, following Federal Reserve Chair Jerome Powell’s remarks at the Jackson Hole central bankers’ symposium.
- Powell stressed that the central bank shouldn’t rush to combat inflation spike and that he supported scaling back the Fed’s bond purchases this year.
How did the major indices perform?
- The Dow Jones Industrial Average rose 242.68 points, or 0.7%, to 35,455.80.
- The S&P 500 advanced 39.37 points, or 0.9%, to 4509.37 after Mr. Powell’s highly anticipated speech at the virtual Jackson Hole conference. It was the first time the index closed above 4500.
- The Nasdaq Composite rose 183.69, or 1.2%, to a record 15129.50. The Dow Jones Industrial Average rose 242.68, or 0.7%, to 35455.80.
- All three indexes were up for the week with the Dow up 1%, the S&P 500 .5%, and the Nasdaq Composite 2.8%.
- The small-capitalization Russell 2000 index climbed 5.1% in its best weekly rise since the period ended March 12, when it jumped 7.32%, FactSet data show.
What drove the market?
- Federal Research Chief Comments: Investors were monitoring Mr. Powell’s speech for clues about when the Fed might start to scale back its easy-money policies. The central bank has been conducting $120 billion in monthly asset purchases to juice the economic recovery while holding its benchmark short-term interest rate near zero. Such policies have helped propel stocks to all-time highs.
- The Fed Chief said he advocated tapering the Fed’s purchases of $80 billion of Treasury’s and $40 billion of mortgage-backed securities each month but was but did not signal specific timing and emphasized the belief held by many Fed members that surging inflation would be a short-lived phenomenon as it has been largely caused by supply chain bottlenecks and increased demand as the economy recovers from the pandemic. The tapering question is a significant one for market participants because the monthly asset purchases have added critical liquidity to markets since the economy plunged into recession last year during the coronavirus pandemic.
- Inflation: A reading of the U.S. rate of inflation, based on the personal consumption deflator, rose again in July and drove the increase over the past year to a 30-year high, pointing to fresh strains on businesses and consumers as the economy recovers from the pandemic. The so-called PCE price index, or personal-consumption expenditures, the Fed’s preferred measure of inflation, climbed 0.4% in July, government figures show. It was the fifth big increase in a row while the 12-month rise in PCE to 4.2%, from 4%, was the highest since 1991. However, the core rate, excluding food and energy prices, over the past 12 months was unchanged at 3.6%, keeping it at a 30-year high.
- Economic Data: In other economic data, personal incomes climbed 1.1% last month while spending increased 0.3%; and the U.S. international trade deficit in goods dropped 6.2% in July to $86.4 billion.
- Meanwhile, the University of Michigan’s consumer-sentiment index slipped to 70.3, versus the 70.7 expected and below the 81.2 earlier reading, indicating waning consumer optimism amid the spread of the coronavirus delta variant.
- Coronavirus worries: Equities markets were also concerned about the spread of the Delta variant of Covid-19 which continues to weigh on prices, particularly in the commodity complex. New daily Covid cases are still on the rise in the U.S., climbing to their highest levels since January to a seven-day average of nearly 156,000. That’s a 10% increase from the prior week. The seven-day average of daily new Covid deaths was 1,194. That’s 39% higher than the prior week.
Which stocks were in focus Friday?
- Peloton Interactive Inc. shares tumbled 8.6% to close at $104.34 after the company said it has been subpoenaed by the Justice Department and U.S. Department of Homeland Security for documents relating to its reporting of injuries caused by its products.
- Support.com’s shares surged almost 34%, closing at $26.33 and contributing to a nearly 200% weekly gain. Support.com provides customer and technical support.
- Quanterix Corp. said that while it was previously engaged by Cassava Sciences Inc. to perform sample testing, the digitized biomarker analysis company said it, or its employees, “did not interpret the test results or prepare the data charts” presented by Cassava to the Alzheimer’s Association International Conference (AAIC) in July, or otherwise. Quanterix’s stock jumped 9.4% while Cassava shares plunged 17.7%.
- EngageSmart Inc. on Friday filed its initial public offering documents for the Braintree, Mass.-based payment software company to trade on the New York Stock Exchange under the symbol “ESMT.”
How did the European markets perform?
- European stocks rose on Friday after Federal Reserve Chair Jerome Powell’s comments reassured investors that programs that have flooded markets with liquidity for the past year will remain in place for the time being.
- The pan-European STOXX 600 index closed 0.4% higher, with mining stocks up 1.9%, while real estate stocks added 1.5%.
- Friday’s gains helped the STOXX 600 close 0.8% higher for the week, after trading flat for several days. Commodity-linked stocks were the best weekly performers, as they bounced back from steep losses.
- The German DAX was higher by 0.06%, while the French CAC 40 lead the FTSE 100 lower. They are down 0.43% and 0.07% respectively.
- The STOXX 600 extended its gains after Powell’s highly anticipated announcement, which reassured investors that programs that have flooded markets with liquidity for the past year will remain in place for the time being.
- Entra was the best performer on the STOXX 600, rising 4.6% as its peer Castellum bought 11.8% of shares in the firm from the government pension fund in Norway, according to Reuters.
- In economic data, a survey showed French consumer confidence eased marginally in August, while morale amongst Italian businesses and consumers also fell this month.
- The Delta variant of the coronavirus is only expected to have a limited impact on the eurozone economy, which remains on course for robust growth this year and next, European Central Bank Chief Economist Philip Lane noted earlier this week.
- In individual stocks, Just Eat Takeaway.com, which owns GrubHub, fell 7.5% after the New York City Council approved legislation to license food-delivery apps and permanently cap commissions they can charge restaurants. Just Eat was the biggest percentage loser on the STOXX 600 on Friday.
- Norwegian fish farmer Salmar rose 2.5% after the company dropped plans to launch an 11.8 billion crowns ($1.29 billion) cash bid for rival Norway Royal Salmon (NRS). NRS shares fell 11.8%.
- French auto parts maker Faurecia gained 2.7% to 42.07 euros after Citigroup hiked the price target on the company’s stock to 56 euros from 41 euros.
How did Asian markets perform?
- Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 1.14%, while the Nikkei 225 led the Hang Seng lower. They fell 2.07% and 0.27% respectively.
- Shares were set for their best week since February on Friday as Chinese markets cheered a burst of central bank liquidity. China’s top stocks increased 0.57% after China’s central bank made its largest weekly cash injection into the banking system in recent weeks, when Chinese stocks squeezed the region.
- MSCI’s widest non-Japanese Asia Pacific stock index fell 0.1%, while Japan’s Nikkei Stock Average fell 0.46%.
Commodities and Bonds
- The 10-year Treasury note yield fell Friday about 3 basis points to 1.311% but was still up about 5 basis points for the week. Yields and bond prices move in opposite directions.
- A weaker U.S. dollar, a more optimistic demand outlook in China, and supply outages in the Gulf of Mexico drove oil prices higher this week. Global benchmark Brent traded above $72 per barrel while the WTI climbed to just south of $69 per barrel.
- Gold futures rose nearly 1.4% to settle at $1,819.50 an ounce, the highest level in nearly four weeks.
The dollar was down 0.4% Friday and 0.9% lower for the week, as gauged by the ICE U.S. Dollar Index, a measure of the buck against a half-dozen rivals.
Investors will digest several earnings reports including from Zoom Video, Cloudera, Asana, Hewlett Packard Enterprise, Broadcom, and DocuSign; and a range of economic and manufacturing data from across the world.