Before The Bell
Data released this morning by the Labor Department showed initial weekly jobless claims of 373,000 for the week ended July 3rd. That did not quite match expectations for 350,000 new filings, indicating there is room for improvement.
Stock futures are pointing to a weak opening this morning, as a further decline in Treasury yields suggests uncertainty on Wall Street about growth.
Psychologically, news that Japan may adopt COVID-19 restrictions that could even bar spectators at the upcoming Olympic Games may rattle investors who have assumed the disease would continue to fade as a threat to the recovery.
Stocks traded in a narrow range on Wednesday ahead of the 2:00 EDT release of the minutes of the Federal Reserve’s most recent policy meeting. The release subsequently reassured investors that the central bank is not yet ready to reduce its aggressive monetary stimulus.
For the session, the S&P 500 and NASDAQ closed at all-time highs, up 15 points and 1 point respectively, with the Dow Jones Industrial Average closing 104 points higher.
Leadership from the major stock indexes did not translate into a positive showing in terms of market breadth, though. More issues declined than advanced on both the New York Stock Exchange and the NASDAQ.
Notably, the yield on the benchmark 10-year Treasury note fell to 1.32%, its lowest level since February. Yields, which ease as prices of the notes rise, have been slipping lately as the market places more weight on the possibility that the recent rise in inflation will prove temporary. There is also some thinking that the dip in Treasury yields is a signal that GDP growth may be peaking.
The idea that the economy might not perform as well as previously expected is being fueled partly by concerns that variants of the Covid-19 virus may spread, and spark renewed business restrictions.
In turn, economically sensitive stock market sectors that had been among the leaders earlier this year, such as energy and financial issues, have not done as well in recent weeks as the so-called reflation (or re-inflation) trade has hit a bump in the road. But it is not completely clear that sectors closely tied to broader business conditions will continue to be laggards. Barring the recurrence of a public health crisis, the reopening of the economy should proceed.
Overall, the latest disclosures (albeit from a few weeks ago) from the Fed indicating it has no immediate plans to rein in policy are a plus for the market. The Federal Reserve is basically preparing investors for a time when it will likely tighten policy. But we are not there yet since the recovery is incomplete and uneven across sectors, suggesting substantial further progress is needed before the Fed acts.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
