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Market Snapshot: S&P 500, Nasdaq end at all-time highs as U.S. stocks book weekly gains after Powell’s dovish Jackson Hole speech

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U.S. stocks indexes closed higher Friday to book weekly gains, with the S&P 500 and Nasdaq Composite indexes finishing at fresh peaks, following Federal Reserve Chair Jerome Powell’s remarks at the Jackson Hole central bankers’ symposium.

Powell said he supported scaling back the Fed’s bond purchases this year, though he did not signal specific timing and also emphasized the belief held by a number of Fed members that surging inflation would be a short-lived phenomenon as it has been largely caused by supply chain bottlenecks and increased demand as the economy recovers from the pandemic.

How did stock benchmarks trade?
  • The Dow Jones Industrial Average
    DJIA,
    +0.69%

    rose 242.68 points, or 0.7%, to 35,455.80.
  • The S&P 500
    SPX,
    +0.88%

    advanced 39.37 points, or 0.9%, to a record 4,509.37.
  • The Nasdaq Composite Index
    COMP,
    +1.23%

    jumped 183.69 points, or 1.2%, to a record 15,129.50.
  • Russell 2000 index
    RUT,
    +2.85%

    climbed 63.17 points, or 2.9%, to 2,277.15.

On Thursday the Dow
DJIA,
+0.69%

fell 192 points to close at 35,213, while the S&P 500
SPX,
+0.88%

declined 0.58% and the Nasdaq Composite
COMP,
+1.23%

moved 0.64% lower.

But for the week, the Dow gained 1%, the S&P 500 rose 1.5%, and the Nasdaq Composite advanced 2.8%. The small-capitalization Russell 2000 index climbed 5.1% in its best weekly rise since the period ended March 12, when it jumped 7.32%, FactSet data show.

What drove the market?

Federal Reserve Chair Jerome Powell, in his closely followed speech Friday, said he advocated tapering the Fed’s purchases of $80 billion of Treasurys and $40 billion of mortgage-backed securities each month but was vague about the timetable.

“It was viewed, I think, by many as a dovish speech,” said Bob Doll, chief investment officer at Crossmark Global Investments, in a phone interview Friday. “I’m not sure I see it that way.” Doll told MarketWatch that he continues to expect the Fed to make an announcement on tapering at its policy meeting in September.

In his view, the market will probably become “bumpier” amid uncertainty surrounding the delta variant of the coronavirus, and as economic and corporate earnings growth slows from an “unsustainable” pace in the recovery from the pandemic to a “very respectable pace.” “Markets tend to prefer acceleration to deceleration,” he said. “The easy money has been made this year with the stock market up nearly 20%.”

Fed Chair Powell said the U.S. central bank “will be carefully assessing incoming data and the evolving risks,” perhaps offering himself more wiggle room before its Sept. 21-22 meeting to digest further evidence of the health of the economy, including a coming jobs reports for August.

“My view is that the ‘substantial further progress’ test has been met for inflation,” he said in his speech. “There has also been clear progress toward maximum employment.”

The tapering question is a significant one for market participants because the monthly asset purchases have added critical liquidity to markets since the economy plunged into recession last year during the coronavirus pandemic. “There’s a lot of money sloshing around,” said Doll.

Powell’s remarks come after a reading of the U.S. rate of inflation, based on the personal consumption deflator, rose again in July and drove the increase over the past year to a 30-year high, pointing to fresh strains on businesses and consumers as the economy recovers from the pandemic.

“He went out of his way one more time to say that inflation is a concern but it’s temporary,” said Doll. “My view is that some of it is, some of its supply chain related, and some of it is actually moving up.”

The so-called PCE price index, or personal-consumption expenditures, the Fed’s preferred measure of inflation, climbed 0.4% in July, government figures show. It was the fifth big increase in a row while the 12-month rise in PCE to 4.2%, from 4%, was the highest since 1991. However, the core rate, excluding food and energy prices, over the past 12 months was unchanged at 3.6%, keeping it at a 30-year high.

Powell’s comments also followed those from Fed officials who had joined the chorus of voices in favor of tapering soon. In an interview with CNBC, Philadelphia Fed President Patrick Harker said he didn’t think asset purchases was “doing a whole lot right now.” Cleveland Federal Reserve Bank President Loretta Mester, also speaking to the network, said she would be comfortable with the central bank laying out its taper plans in September, and winding down purchases by mid-2022.

Powell walked a fine line between pointing to tapering bond purchases and divorcing that policy move from ultimately normalizing interest rates, assuaging market bulls who have been fearful that an easy-money regime would be at an end too soon.

“The exact timing and speed of the taper will be flushed out in the coming meetings and will likely have some dependency on the labor market data in the next couple of months,” wrote Charlie Ripley, senior investment strategist at Allianz Investment Management, in emailed comments on Friday.

“However, it’s worth noting that Chairman Powell warned market participants that bond tapering should be differentiated from rate lift off as one event may not seamlessly lead to the other,” Ripley said.  

In other economic data, personal incomes climbed 1.1% last month while spending increased 0.3%; and the U.S. international trade deficit in goods dropped 6.2% in July to $86.4 billion.

“Consumers are in one of the best positions that they’ve been in,” Gargi Chaudhuri, BlackRock’s head of iShares investment strategy for the Americas, said in a phone interview Friday. “Savings rates are high.”

Meanwhile, the University of Michigan’s consumer-sentiment index slipped to 70.3, versus the 70.7 expected and below the 81.2 earlier reading, indicating waning consumer optimism amid the spread of the coronavirus delta variant.

Yet the stock market has been “pretty resilient,” said Chaudhuri, with hope that last year’s “complete shutdowns” won’t be repeated in the pandemic.

Which companies were in focus?
  • Peloton Interactive Inc. PTON shares tumbled 8.6% after the exercise-equipment company said it has been subpoenaed by the Justice Department and U.S. Department of Homeland Security for documents relating to its reporting of injuries caused by its products.
  • Support.com’s shares
    SPRT,
    +33.65%

    surged almost 34%, contributing to a nearly 200% weekly gain. Support.com provides customer and technical support. 
  • Quanterix Corp. QTRX said that while it was previously engaged by Cassava Sciences Inc. SAVA to perform sample testing, the digitized biomarker analysis company said it, or its employees, “did not interpret the test results or prepare the data charts” presented by Cassava to the Alzheimer’s Association International Conference (AAIC) in July, or otherwise. Quanterix’s stock jumped 9.4% while Cassava shares plunged 17.7%.
  • EngageSmart Inc. on Friday filed its initial public offering documents for the Braintree, Mass.-based payment software company to trade on the New York Stock Exchange under the symbol “ESMT.”
How did other assets trade?
  • The 10-year Treasury note yield
    TMUBMUSD10Y,
    1.313%

    fell Friday about 3 basis points to 1.311% but was still up about 5 basis points for the week. Yields and bond prices move in opposite directions.
  • The dollar was down 0.4% Friday and 0.9% lower for the week, as gauged by the ICE U.S. Dollar Index
    DXY,
    -0.41%
    ,
    a measure of the buck against a half-dozen rivals.
  • Oil futures
    CL00,
    +1.85%

    rose, with the U.S. benchmark settling 2% higher at $68.74 a barrel. Gold futures
    GCZ21,
    +1.41%

    rose nearly 1.4% to settle at $1,819.50 an ounce, the highest level in nearly four weeks.
  • In Asia, Tokyo’s Nikkei 225
    NIK,
    -0.36%

    declined 0.4% but rose 2.3% for the week, while the Hong Kong Hang Seng Index
    HSI,
    -0.03%

    closed 0.03% lower but still rang up a 2.3% gain for the week, and the Shanghai Composite
    SHCOMP,
    +0.59%

    rose 0.6%, contributing to a weekly gain of 2.8%.
  • In Europe stocks closed higher, with London’s FTSE 100
    UKX,
    +0.32%

    rising 0.3%, for a weekly gain of 0.9%, and the pan-European Stoxx 600
    SXXP,
    +0.43%

    gaining about 0.4%, putting in a weekly advance of 0.8%. France’s CAC 40
    PX1,
    +0.24%

    rose 0.2% on the session and logged a 0.8% weekly climb, while Frankfurt’s DAX
    DAX,
    +0.37%

    closed 0.4% higher, notching a 0.3% rise for the week.

—Jack Denton contributed to this report.

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