Before The Bell
Trading in the major stock market indexes has turned choppy on a resurgence in COVID-19 cases and signs of a shift in Federal Reserve policy. But while those developments have toned down bullish sentiment, there is little reason to believe that long-term prospects for the economy will be hurt materially.
Investors have enjoyed a very impressive rise in stock prices for the past 17 months, based on the comeback in business conditions that moved into high gear with the rollout of vaccines in late 2020.
The virus is proving stubborn, though, and an increase in hospitalizations stateside has come about owing to the spread of the Delta variant. On a broader scale, news of ongoing lockdowns in Sydney, Australia, neighboring New Zealand, and other places, is weighing on sentiment.
The return of the virus is pulling down projections for GDP in its wake, and the sense of being off to the races has been reined in somewhat. In turn, corporate profits might not be quite as vigorous as earlier envisioned. No doubt, we are still in the midst of a broad upturn, but because the advance may be a shade less than thought, the difference is being accounted for in stock prices.
Meanwhile, commodity prices, notably for oil, have also tumbled recently from their highs on indications that economic activity may prove less vigorous. There are more signs that fewer people plan to attend events away from home, and the return to the office for a number of companies is being delayed. Not surprisingly, shares in the energy space, as well as in the travel and leisure sector, have backed off as a degree of caution has set in.
Then, too, the release of the minutes of the Federal Reserve’s last policy meeting showed more of a push to start reducing the central bank’s hefty monthly asset purchases. The market views the Fed’s buying program as a plus for stocks. Fewer, or no, securities purchases would be one less positive. On the other hand, the Federal Reserve might not be as quick to taper its bond buying if the pickup in coronavirus cases continues.
On the bright side, the labor market continues to make strides. Jobless claims as reported by the Labor Department fell to a new pandemic low last week.
This morning, stock futures are pointing to a moderately lower open following a session that saw the Dow Jones Industrial Average decline 67 points; contrasting a six point gain in the S&P 500 and a 16 point rise in the NASDAQ. More to the point, the volatility that marked trading shows signs of continuing in the short term.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned in this article.
