Market Comment: US Stocks Are Rising
U.S. stocks are rising, continuing to regain footing in early afternoon trading, following last week's drawdown. The Fed and its recent actions remain the focus with the markets continuing to digest last week's tweaked stance by the Fed, which roiled the markets as boosted economic growth and inflation outlooks led to the beginning of the discussion of tapering asset purchases. The flood of Fedspeak is slated for this week, headlined by Chairman Jerome Powell's testimony tomorrow on Capitol Hill. The U.S. dollar is giving back some of last week's rally that took the greenback to levels not seen since April and Treasuries remain choppy as yields rise after a noticeable curve flattening in the wake of the Fed's announcement. Gold is rebounding and crude oil prices are adding to a recent run. demand. Europe closed mostly higher.
At 12:45 p.m. ET, the Dow Jones Industrial Average is rising 1.5%, the S&P 500 Index is gaining 1.2%, and the Nasdaq Composite is advancing 0.8%. WTI crude oil is increasing $1.68 to $72.97 per barrel, Brent crude oil is $1.21 higher at $74.72 per barrel. The Bloomberg gold spot price is rising $19.51 to $1,783.167 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is declining 0.4% to 91.87.
Treasuries remain choppy in the wake of Wednesday's Fed monetary policy decision
Treasuries are lower, with the economic calendar void of any major releases today. The yield on the 2-year note is nearly unchanged at 0.25%, while the yield on the 10-year note is rising 3 basis points (bps) to 1.47%, and the 30-year bond rate is increasing 7 bps to 2.08%.
Treasuries remain choppy after last week's noticeable flattening of the yield curve on the heels of the Fed's monetary policy decision, in which the Central Bank pulled forward its time frame for when it may begin to raise its benchmark target for the fed funds rate, while boosting its inflation and economic growth forecasts. The U.S. dollar is giving back some of last week's rally in the wake of the Fed's announcement.
Schwab's Liz Ann Sonders discussed the Fed's decision in her latest article, Fed Still Hasn't Found What it's Looking For, noting that investors will likely remain uber-focused on inflation over the next couple of months. She adds that at least a portion of the upside pressure—the base effects relative to last year’s pandemic-related deflation—should begin to fade quickly, while supply chain disruptions and bottlenecks could take a bit longer and will vary from product to product and industry to industry.
Liz Ann points out that longer term, inflation's trajectory will be largely dependent on the labor market and whether wage growth becomes persistent and pervasive—possibly leading to a "wage-price spiral" type of inflation. She discusses how we sit in the transitory camp and while we wait to see how this fleshes out, it's important to point out that inflation can't be viewed in a vacuum. She concludes by saying that it's too soon to judge whether the Fed's firm belief that inflation will be "transitory" comes to fruition; but other factors need to be considered in the meantime, including economic (and productivity) growth and further healing in the labor market.
This week, volatility is likely to remain in the markets as the economic calendar will deliver some data points that could garner attention, with existing home sales for May getting the ball rolling tomorrow. The report will be followed by June preliminary Manufacturing and Services PMIs from Markit, May new home sales, preliminary May durable goods orders, the final read on Q1 GDP, jobless claims for the week ended June 19, May personal income and spending, and the final University of Michigan Consumer Sentiment Index. However, given the hyper-focus of the markets on inflation and the Fed's incrementally more hawkish tone that has fostered uncertainty regarding the commencement of Fed tapering, this week's flood of Fedspeak could bring the heaviest contributor to the market action. The full roster of speakers will be headlined by Fed Chairman Jerome Powell's testimony on Capitol Hill on Tuesday regarding the COVID-19 response and the economy.
Europe mostly higher as Fed's tweaked tone remained in focus
European equities closed higher, as the global markets continued to react to last week's monetary policy decision out of the world's largest economy of the U.S., which brought an incrementally more hawkish stance, pulling forward its target fed funds rate lift-off forecast in the wake of increased inflation and economic growth outlooks. The tweaked tone comes as a host of Fed members are set to speak this week after Friday's hawkish comments from St. Louis Fed President Bullard roiled the markets. The major sectors were mostly higher as Consumer Discretionary, Materials and Industrials led to the upside, but Health Care issues traded lower. Volatility in the foreign exchange and bond markets continued in the wake of the Fed's monetary policy stance, while the Bank of England is set to deliver its monetary policy decision on Thursday. The economic calendar was quiet today, and the euro and British pond rebounded from last week's weakness against the U.S. dollar which rallied to multi-month highs after the Fed's announcement. Bond yields in the U.K. and the Eurozone traded higher.
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