Before The Bell
The multi-month rally on Wall Street continued yesterday morning, but this time, for a change, the surge was led by the Dow Jones Industrial Average, as a healthy dose of sector rotation pushed the old-line blue-chip composite into a clear lead. As has been the case recently, the economic news background was mixed. On point, second-quarter GDP was revised from a decline of 32.9% to a setback of 31.7%. But that slightly less ominous showing was offset by another dour reading on weekly jobless filings, with 1.1 million job losses being noted over the last seven days.
In other news, on a day in which the Dow erased all of its losses for 2020, the Federal Reserve unveiled a new framework that could keep interest rates lower for a longer period of time. Specifically, in a speech, Fed Chair, Jerome Powell said that the central bank had formally agreed to a policy of so-called average inflation targeting. What this means is that the Fed will let inflation run moderately above its 2% target for an unspecified time. That position was welcomed by the Street.
In fact, the revised position gave a particular lift to some of the more interest-rate sensitive Dow issues, which rallied on the news, with the blue chips ending the morning up about 275 points. Among individual stocks doing well as the morning ended was Abbott Labs (ABT), which jumped to a 52-week high after the company won authorization for a $5 rapid coronavirus test. Meantime, after a slow start, the tech-laden NASDAQ pushed into the plus column, while the S&P 500 Index cleared the 3,500 level for the first time ever.
This rally, quickly gave way to profit taking as the afternoon began, with the Dow giving up most that 275-point advantage by 1:00 PM (EDT), while the S&P 500 Index and the NASDAQ fell into the red again, the latter by 115 points. Then, another rally attempt got under way lasting until just after 3:00 PM, with the three main indexes all getting back into plus territory. One final selling squall would take hold, however, with the NASDAQ dropping into the red for a closing loss of 40 points. The S&P 500 would eke out a narrow gain, while the Dow would finish higher by 160 points, or about half its best level of the day.
As for influences on the day, the big one, of course, was the Federal Reserve, as Mr. Powell's words certainly were comforting for investors. Regarding the S&P 500, that index is up more than 2.5% for the week thus far, its best such stretch since early July. Regarding individual issues, shares of software giant and Dow component Microsoft (MSFT) jumped as did the stock of another Dow issue Walmart (WMT). The two companies are teaming up in a bid to acquire the China-based social media app TikTok. All in all, it was an uneven session on Wall Street.
Finally, in trading after the close, the equity futures showed further modest gains. Now, this morning, those incremental advances are continuing, suggesting another positive opening and a solid close to a strong week.
– Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
