Before The Bell
The recent correction in some high-profile NASDAQ stocks appears to be over for the time being, following a surge on Tuesday and a flattish performance yesterday. Moreover, the Dow Jones Industrial Average and the S&P 500 Index, which had weathered the downtick in the NASDAQ quite well, have performed even better this week, notching additional all-time highs. Helping sentiment have been bargain hunting in beaten down stocks and comparatively tame inflation data, which reassured investors and lowered Treasury yields.
Now, this morning, we are expecting a nicely higher open on Wall Street. Meanwhile, today saw the release of weekly jobless claims figures. Here, total filings for the seven days ended March 2nd, came to 712,000. That compared with the previous week's tally of 754,000. Treasury note yields, which eased to 1.52% yesterday, are now settling in at 1.51%. That additional dip also is helping to support the futures.
In the bigger picture, House passage of the Senate version of the $1.9 trillion COVID-19 relief bill is likely to have the longest-running impact on U.S. economic growth through 2021 and perhaps beyond. The combination of stimulus and unemployment checks, and other aid in the bill, is likely to give a solid boost to spending.
In other economic news, and a contributing factor in yesterday's strong overall showing by the financial markets, was the release of the aforementioned tame inflation report. Specifically, the U.S. Labor Department reported that the Consumer Price Index rose by 0.4% in February. That was in line with expectations with much of the gain triggered by a jump in energy costs. Once we back out the volatile food and energy components to arrive at the so-called core CPI, we find that the increase was just 0.1% last month. That, too, was as expected, calming many investors’ concerns.
The fear of rising inflation, which eased somewhat with the CPI release, has been anathema for the stock market in recent weeks, with yields on the 10-year Treasury note climbing above 1.60% for a time. A year ago, yields were below 0.40% and no threat to equities. Now, even with a modest retreat yesterday down to 1.52% and the further dip this morning, they are just a half a percentage point, or so, below the average yield of the stock market, depending on how it’s measured. A strengthening economy, even as economic stimulus was pending on Capitol Hill, has been fueling these inflation worries. Meantime, we will get another inflation indication tomorrow morning when the government issues data on its Producer Price Index. Last month a jump in the PPI was received poorly by Wall Street.
So, with the constructive CPI reading in hand and stimulus cash to flow beginning in a matter of days the Dow and the S&P 500 headed strongly higher yesterday, while, as noted, the NASDAQ Composite marked time. There continued the rotation back into the cyclical and value stocks and away from information technology. That has been the pattern for much of the past few weeks. This morning, the NASDAQ futures are leading the way. An indicator of consumer growth, U.S. payment volume reported by Dow component Visa (V), rose by 9.0% last month and the card processor’s shares rose, in response.
– Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
