Stocks gained on Friday to shake off losses from a day earlier, as traders considered a key speech from Federal Reserve Chair Jerome Powell.
The S&P 500 reached a record high, led by gains in the energy, materials and communication services sectors. The Nasdaq added more than 1% to also set fresh record intraday and closing highs as Treasury yields fell across the curve.
Federal Reserve Chair Jerome Powell’s Jackson Hole speech on Friday provided a fuller picture of the central bank leader’s thinking about the pace of the economic recovery in light of the latest Delta variant threat. Despite comments from more hawkish Fed officials lately, Powell’s remarks remained more dovish, suggesting he was more inclined to wait to see the further progress made in the economy before adjusting policy and tapering asset purchases.
“Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful,” Powell said in prepared remarks.
However, he also added that “If the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year," while acknowledging the lingering downside risk of the Delta variant. Powell also reiterated that he believes current elevated levels of inflation will prove transitory, and pass as the economic recovery matures further.
“It’s really nice to see how positively the markets are reacting to this,” Courtney Dominguez, Payne Capital Management senior wealth advisor, told Yahoo Finance. “Realistically what you’re seeing is the Fed has said, okay we’re going to start to dial back our asset purchases, and it’s because the economy is strong enough to withstand that. They’re looking at where unemployment numbers are, people getting back to work, so ultimately, they’re able to do this because the economy is on good footing. And that’s really what the stock market cares about at the end of the day – it’s how is the economic data looking.”
Powell's remarks were taken as dovish by market participants, with stocks extending gains as the Fed leader spoke. The speech also diverged from more hawkish comments from other Fed members as of late. Federal Reserve Bank of Kansas City President Esther George told Yahoo Finance’s Brian Cheung earlier this week that she would prefer to begin removing monetary policy accommodation and begin tapering asset purchases “sooner rather than later” as the economy continues to recover. George serves as an alternate voting member of the Federal Open Market Committee this year, and will be a voting member next year.
For equities, even given Thursday’s pullback, the S&P 500 has managed to hold near all-time highs, boosted by a bevy of stronger-than-expected second-quarter earnings results, solid economic data, and still-accommodative policies from the Fed. The index has so far risen 19% for the year-to-date, and is on track for a nearly 2% gain in August.
“One has to be careful about focusing on issues over the short term over volatility and really getting swayed from making proper long-term decision,” Steven Wieting, Citi Global Wealth chief investment strategist, told Yahoo Finance. “Generally speaking, for example, a market that’s fallen 20% is going to generate higher returns than a market that’s rallied 20%. And this conundrum is always with us: We really feel better about markets that have performed well … but they’re really areas where you have to really reestimate what the future returns will look like.”
4:00 p.m. ET: Stocks end at records after Powell's Jackson Hole remarks
Here's where markets ended Friday's trading day:
S&P 500 (^GSPC): +39.38 (+0.88%) to 4,509.38
Dow (^DJI): +241.69 (+0.69%) to 35,454.81
Nasdaq (^IXIC): +183.69 (+1.23%) to 15,129.50
3:40 p.m. ET: 'Markets needed training wheels in the depths of COVID ... it's time to take the training wheels off': Portfolio manager
Markets have risen to fresh highs at least in part with the support of the Federal Reserve's crisis-era monetary policies, which provided liquidity to the financial system and kept borrowing costs low.
Now, however, the strength of the rebound in economic activity and corporate earnings seen so far in 2021 would warrant a somewhat less accommodative tilt to monetary policy, according to at least one strategist.
“Markets needed training wheels in the depths of COVID, but we’ve taken the bike around the block countless times at this point, and I think it's time to take the training wheels off,” John McClain, Brandywine Global portfolio manager, told Yahoo Finance Live on Friday. “I think we should get back to pulling back some of the monetary stimulus, at a minimum.”
"We still have a lot of monetary stimulus in the system," he added. "We still have fiscal stimulus coming in, and the potential for meaningful additional fiscal stimulus with this $3.5 trillion bill that's in Congress at the moment."
3:19 p.m. ET: Disney shares jump after WSJ reports ESPN is seeking $3 billion sports-betting deal
Shares of Dow component Disney (DIS) rose to a session high after the Wall Street Journal reported that the company's ESPN business was looking at a licensing deal with sports-betting companies that would be worth at least $3 billion.
Shares of Disney rose about 2% trade around $180 per share. The stock was the third-best performer in the Dow after materials company Dow Inc. and Boeing.
12:08 p.m. ET: What economists are saying about Powell's latest remarks
Market pundits and traders across the board said Powell's Jackson Hole speech was a measured one, which struck the balance between acknowledging lingering risks to the outlook while acknowledging the progress already made in the recovery.
Here's what some economists said of Powell's Jackson Hole appearance, based on notes sent to Yahoo Finance:
"We think Chair Powell's comments are consistent with our baseline view that tapering will be announced at the Nov. meeting and begin mid-month. What to watch? The next jobs report is critical. We are forecasting job growth of 600K, which is a slowdown from the recent trend owing in part to Delta. This is likely to be soft enough to leave the Fed wanting to monitor additional data before launching into tapering." – Michelle Meyer, U.S. economist for Bank of America
"[Powell] successfully threaded the needle in communicating that tapering will likely begin this year, while reinforcing the notion that tapering does not mean tightening. We believe that barring further setbacks from the Delta variant, that September will likely produce a blowout jobs number and set the table for the official tapering announcement at the September FOMC meeting." – Cliff Hodge, chief investment officer for Cornerstone Wealth
"Even if we see another big gain in payroll employment in August, we suspect that the Delta variant threat means the majority of officials will want to wait until the November meeting to give the green light ... If there was really a strong push among officials to kick off the taper later this month, then surely Powell would have dropped a heavier hint today rather than just repeating what was in the July minutes." – Paul Ashworth, chief U.S. economist for Capital Economics
10:20 a.m. ET: Stocks hit record highs as Powell gives virtual remarks at Jackson Hole
Here's where markets were trading Friday morning:
S&P 500 (^GSPC): +34.71 (+0.78%) to 4,504.72
Dow (^DJI): +233.95 (+0.66%) to 35,447.07
Nasdaq (^IXIC): +131.14 (+0.88%) to 15,078.55
Crude (CL=F): +$1.18 (+1.75%) to $68.60 a barrel
Gold (GC=F): +$5.60 (+0.31%) to $1,800.80 per ounce
10-year Treasury (^TNX): -1.3 bps to yield 1.331%
10:17 a.m. ET: Powell maintains 'transitory' inflation view, says he sees 'little evidence of wage increases that might threaten excessive inflation'
Federal Reserve Chair Jerome Powell maintained his previously telegraphed view that the current, elevated levels of inflation in the recovering economy would ultimately prove transitory. Powell also specified that wage increases were unlikely to produce a sustained surge in inflation, even given ongoing worker supply shortages and rising compensation costs among companies across industries.
"Businesses and consumers widely report upward pressure on prices and wages. Inflation at these levels is, of course, a cause for concern," Powell said. "But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary."
"Longer-term inflation expectations have moved much less than actual inflation or near-term expectations, suggesting that households, businesses, and market participants also believe that current high inflation readings are likely to prove transitory and that, in any case, the Fed will keep inflation close to our 2% objective over time," Powell added.
"Today we see little evidence of wage increases that might threaten excessive inflation," he said.
10:07 a.m. ET: Powell suggests taper could begin by year-end given labor market progress, but says policy change too early could be 'particularly harmful'
Federal Reserve Chair Jerome Powell began delivering his speech at the Jackson Hole Symposium Friday morning. In these, he noted that the economy and labor market especially have picked up in their recovery, albeit with some risks still lingering especially as the Delta variant continues to spread.
“Favorable conditions for job seekers should help the economy cover the considerable remaining ground to reach maximum employment,” Powell said in prepared remarks at the event. Still, he noted that labor shortages remain an issue, and that making a policy mistake given current labor slack "could be particularly harmful."
Ultimately, the economy is still making progress toward the Fed's dual goals of reaching maximum employment and price stability in the economy, suggesting "it could be appropriate to start reducing the pace of asset purchases this year,” Powell said.
9:30 a.m. ET: Stocks open higher
Here's where markets were trading shortly after the opening bell Friday morning:
S&P 500 (^GSPC): +11.75 (+0.26%) to 4,481.75
Dow (^DJI): +65.17 (+0.19%) to 35,278.29
Nasdaq (^IXIC): +37.03 (+0.24%) to 14,981.56
Crude (CL=F): +$1.42 (+2.11%) to $68.84 a barrel
Gold (GC=F): -$2.20 (-0.12%) to $1,793.00 per ounce
10-year Treasury (^TNX): unchanged to yield 1.344%
8:30 a.m. ET: Personal income rises by the most since March in July, while spending slows
U.S. personal income rose at the fastest pace in four months in July, reflecting both the broadening pick-up in economic activity as more vaccinations took place, and increased government benefits as new advance Child Tax Credit payments came into effect.
Income increased 1.1% in July compared to June, the Bureau of Economic Analysis said Friday morning. This was a stronger rise than the 0.3% increase expected, and accelerated from June's 0.2% monthly pace.
Personal spending, meanwhile, slowed to a just 0.3% clip in July, decelerating from June's 1.1% advance.
The personal saving rate ticked up to 9.6% from June's 9.4%. This level has come down from a peak of more than 33% in April 2020, but remains elevated compared to pre-pandemic levels.
7:15 a.m. ET Friday: Stock futures gain as traders await Powell
Here were the main moves in markets as of 7:15 a.m. ET:
S&P 500 futures (ES=F): +12.5 points (+0.29%) at 4,479.25
Dow futures (YM=F): +79 points (+0.22%) to 35,239.00
Nasdaq futures (NQ=F): +51 points (+0.33%) to 15,325.74
Crude (CL=F): +$1.06 (+1.57%) to $68.48 a barrel
Gold (GC=F): +$0.40 (+0.02%) to $1,795.00 per ounce
10-year Treasury (^TNX): unchanged, yielding 1.344%
6:38 p.m. ET Thursday: Stock futures edge up
Here's where markets were trading Thursday evening:
S&P 500 futures (ES=F): +3.5 points (+0.08%) at 4,470.00
Dow futures (YM=F): +28 points (+0.08%) to 35,188.00
Nasdaq futures (NQ=F): +13.25 points (+0.09%) to 15,288.00
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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