A rally in tech stocks helped lift the Nasdaq Composite to its first record close since late April and the S&P 500 to eke out its 29th of the year, as investors prepared for an important meeting of the Federal Reserve this week.
The rate-setting gathering could help investors assess how the central bank views evidence of surging inflation against data showing slack in the job market during the COVID pandemic recovery.
The Fed’s two-day meeting commences Tuesday.
How did the stock market trade?
The Dow Jones Industrial Average
fell 85.85 points, or 0.3%, to end at 34,393.75, but off the session’s low of 34,211.54.
The S&P 500 index
rose 7.71 points, or 0.2%, closing at 4,255.15, after flipping positive in the final 15 minutes of trade.
The Nasdaq Composite Index
rose 104.72 points to close at a record 14,174.14, a gain of 0.7%, besting its previous April 26 record closing high of 14,138.78.
What drove the market?
What once proved illusory for the Fed years ago may now be transitory, and now it is time to put talking about inflation on the agenda.
By the middle of the week, investors finally may have a clearer sense of the U.S. central bank’s game plan for confronting inflation and normalizing policy, including whether Fed officials still deem pricing pressures temporary.
“It’s all about interest rates and any possible change in the language from the Federal Reserve,” said Kent Engelke, chief economic strategist, Capitol Securities Management, of stock-market trading Monday.
Engelke also said many still expect the Fed to keep rates near zero and maintain its current pace of bond buying for some time, which may have helped lift technology stocks Monday, up 1%, as a component of the S&P 500 index.
The U.S. central bank is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month, while keeping benchmark interest rates between 0% and 0.25%.
Federal Reserve Chairman Jerome Powell and fellow policy makers are expected to discuss the eventual tapering of that $120 billion a month asset-purchase program, which could prove delicate as they hope to avoid roiling the market in the process.
It is expected that the Fed’s projections of interest rates in the future, the so-called dot-plot, may show a shift forward for the first rate increase to come during 2023. At the moment, the Fed shows no rate increases until 2024 at the earliest. Back in March, the Fed penciled in a 2.2% core rate for the personal consumption expenditure index.
While that may rise, the Fed won’t move the core rate for 2022 much higher, a signal that it still believes the price gains seen in the past few months reflects “largely transitory” factors.
“Though inflation concerns appear to have moderated, we expect volatility to spike around further data indicating accelerating wage growth and/or prices,” wrote Saira Malik, chief investment officer at Nuveen, in a note.
Starting on Tuesday, California’s surging multi-trillion dollar economy will be more fully open for business with the easing of many pandemic restrictions, even though last month it already booked the biggest state tax rebate in American history and record productivity during COVID.
“California is buzzing,” said Todd Morgan, founding member of Bel Air Investment Advisors, in Los Angeles. “People are going out and enjoying their lives, sometimes for the first time in a year or longer,” he said. “There are even lines outside of Gucci, believe it or not.”
While Morgan said he plans to tune in for the Fed update midweek, has said cyberattacks and if 10-year Treasury yields keep falling were higher on his list of worries than the potential for runaway inflation.
“I think it’s too early to say that inflation is here in a big way,” Morgan said. “But if interest rates drop too low, it could be perceived as a sign of an economic slowdown.”
In Europe, U.K. Prime Minister Boris Johnson on Monday extended some lockdown rules until July 19 due to a surge in new cases caused by the Delta variant as positive tests climbed to their highest since February. Leaders of the Group of Seven also championed a 15% global minimum tax rate support and continued fiscal stimulus to help economies dig out of the COVID pandemic.
The U.S. initial public offering market also has a dizzying week on tap, at least by deal number, with 15 companies expected to raise a total of $2.5 billion.
Which companies were in focus?
Shares of General Electric Co.
and its partner Safran were in focus after the duo said they are working together to develop low carbon-emission engines designed for the fight against climate change, in an effort they called RISE.
experimental COVID-19 vaccine was 90.4% effective at preventing symptomatic disease in adults in a large clinical trial, the company said, results that move the shot a step closer to global use. Shares fell 0.8%.
Meme stocks AMC Entertainment Holdings Inc.
and GameStop Corp.
closed mixed. Shares of movie chain AMC added 15.4% and those for bricks-and-mortar videogame retailer GameStop fell 1.7%.
Senseonics Holdings Inc.
the maker of insulin pumps, may be the latest stock to join the meme movement, after its profile rose considerably on social media over the weekend with individual investors. Shares rose 1.9%.
Shares of Lordstown Motors Corp.
plunged 18.8%, near its largest daily percent decline ever, after the company said that it was replacing its chief executive and chief financial officers who resigned.
How did other assets fare?
- The yield on the 10-year Treasury note TMUBMUSD10Y edged up 3.7 basis points to 1.499%. Yields and bond prices move in opposite directions.
- The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, declined 0.1%.
- Oil futures closed lower, with the U.S. benchmark CL00, down less than 0.1% to settle at $70.88 a barrel. Gold futures GC00 settled at the lowest level in a month, falling 0.7%, to$1,865.90 an ounce.
- European equities booked modest gains, with the pan-Continental Stoxx Europe 600 SXXP, closing up 0.2%. London’s FTSE 100 UKX also gained 0.2%.
- In Asia, the Shanghai Composite SHCOMP and Hong Kong’s Hang Seng Index HSI were closed for a holiday; Japan’s Nikkei 225 NIK, rose 0.7%.