Before The Bell
Stocks moved higher toward the end of the week after a tentative agreement was reached on a long-awaited infrastructure bill out of Washington. The market also appears to have started looking past the Federal Reserve’s long-term plans to pull back on its high-octane monetary policy.
Word that both sides of the aisle in Congress had settled on a roughly $1 trillion stimulus measure was a plus for stocks in the heavy equipment sector. The deal still needs to be finalized and the package was less than its proponents hoped for. Even so, another round of government spending is an added positive, coming on top of sizable cash already pumped into the economy.
Meantime, investors to an extent have come to grips with the Fed’s signals that it would begin to raise interest rates by 2023, or sooner. There are also expectations that the central bank’s heavy-duty bond-buying program will begin to diminish, possibly by early next year.
Signs of sustained inflation would accelerate Federal Reserve moves to reduce its aggressive support of business conditions. However, Fed Chair Jerome Powell this week suggested to a congressional subcommittee that much of the recent spike in inflation is being caused by dislocations caused by the pandemic. Mr. Powell’s statement pointed to substantial central bank help for a while longer.
Broadly, although the outline for the stock market now envisions the Fed as less of a source of strength within a year or two, an earnings boom can still push shares higher. Corporate profits should benefit from the above-average rate of GDP now materializing. First-quarter GDP of 6.4% looks repeatable, and may be bettered, in the three-month period now coming to an end.
Risks remain, of course, with variants of the coronavirus affecting segments of the population and not everyone vaccinated. That aside, the push toward normalization offers further promise.
Thursday’s market action saw the glass as half full. The Dow Jones Industrial Average rose 323 points; the S&P 500 climbed 25 points; and the NASDAQ moved up 98 points. The S&P and the NASDAQ closed at record highs.
The broader market followed the major indexes higher, with advancing issues topping decliners by more than two to one on both the NYSE and the NASDAQ.
The financial and industrial sectors outperformed; while the more defensive utilities and real estate stocks lagged.
As for Friday, stock futures point to a modestly higher open about an hour before trading commences.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
