U.S. stocks recover further as Fed’s Powell testifies

U.S. stocks climbed higher Tuesday afternoon, building on a sharp rebound in the previous session from last week’s losses, as investors listened to congressional testimony by Federal Reserve Chairman Jerome Powell.

What are major benchmarks doing?
  • The Dow Jones Industrial Average
    rose 147.86 points, or 0.4%, to 34,024.83

  • The S&P 500
    was up 28.79 points, or 0.7%, at 4,253.58.

  • The Nasdaq Composite
    gained 117.60 points, or 0.8%, to trade at 14,259.08.

On Monday, stocks bounced back sharply from the previous week’s heavy losses, with the Dow advancing 586.89 points, or 1.8%, while the S&P 500 rose 1.4% and the Nasdaq Composite gained 1.8%.

What’s driving the market?

Powell testified before the House select subcommittee on the coronavirus pandemic, marking his first public appearance since last Wednesday when the Fed chief acknowledged that policy makers had started to discuss the eventual reduction of the Fed’s monthly bond purchases. The Fed last week also surprised markets at its policy meeting by revealing policy makers now expect two interest rate hikes by the end of 2023, earlier than previously anticipated.

“Today is all about Chairman Powell,” and how he may respond to any “wild-card questions he may get,” said JJ Kinahan, TD Ameritrade’s chief market strategist, in an interview Tuesday. “We all know his testimony already.”

Chair Powell on Tuesday again signaled the central bank would be patient before scaling back its lose monetary policy, saying the Fed had to be “very humble” about its ability to draw a signal out of the economic data given “such an unusual setting of reopening the economy.”

See: Fed’s Powell stays the course

In prepared testimony released by the subcommittee late Monday, Powell said, “the Fed will do everything we can to support the economy for as long as it takes to complete the recovery.” Inflation, meanwhile, remains top of mind for investors.

“Powell reiterated his view that the recent jump in inflation would prove transitory. While such comments seem to have soothed concerns over the Fed’s hawkish tilt, the question is for how long?” said Lukman Otunuga, senior research analyst at FXTM, in a note.

“Given how markets remain highly sensitive to comments from Fed officials and inflation expectations, the next few days promise to be quite eventful for markets with numerous Fed speakers on the roster,” he said.

A key question for investors following the market reaction to last week’s Fed moves centers on the fate of the reflation trade — bets that assets poised to benefit the most from accelerating economic growth and inflation will outperform their peers.

Kinahan is expecting a “tug a war” between growth and value stocks to continue as investors keep trying to discern whether inflation may be longer lasting.

The reflation trade found renewed life Monday, after suffering in the wake of last Wednesday’s Fed meeting, with value-oriented stocks falling, growth stocks rallying and the yield curve flattening. But the Fed’s change in tone is unlikely to stand in the way of continued post-pandemic growth and a further rise in inflation, said Lauren Goodwin, economist and portfolio strategist at New York Life Investments.

“The reflation trade will not develop linearly from here, and investors should expect hiccups. But the Fed’s adjusted path is hardly a recession-starter,” she said, in a note.

“Higher short-term rates in 2023 and fewer asset purchases in 2022 are unlikely to dramatically shift the ongoing rebound in economic growth,” Goodwin wrote. “Instead, this brief unwind will represent an opportunity to build positions in the reflation theme, through cyclical equity and lower duration.”

Read: Is the reflation trade over? What stock-market investors need to watch

Investors heard from other Fed officials earlier Tuesday also. Cleveland Fed President Loretta Mester said she didn’t want to adjust the central bank’s easy monetary policy stance until the labor market made more progress over the summer. San Francisco Fed President Mary Daly also pointed to the fall, saying the economy was getting to the “substantial further progress” benchmark more quickly than she had thought at the start of the year.

The market is digesting “a lot of crosstalk from the fed governors,” said Steve Sosnick, chief strategist at Interactive Brokers, in an interview Tuesday. He pointed to the challenge the Fed faces in making adjustments to its dovish policy. “Investors are addicted to Fed liquidity,” Sosnick said. “I think the Fed realizes that unwinding their accommodation will take a lot more finesse than it did to implement it.”

Meanwhile, another busy week of initial public offerings on U.S. exchanges is under way this week, with 17 deals on tap, including at least two expected to raise more than $1 billion.

In U.S. economic data, May existing-home sales fell 0.9% to a seasonally adjusted annual rate of 5.8 million, the National Association of Realtors reported. Compared with May 2020, home sales were up nearly 45%, though the year-over-year comparisons are skewed by the onset of the COVID-19 pandemic last year. Economists polled by MarketWatch had projected existing-home sales to come in at 5.73 million.

On the infrastructure front, President Joe Biden is “encouraged by the ongoing talks and discussions that are continuing with Democrats and Republicans,” White House press secretary Jen Psaki told reporters Tuesday. “There’s a budget reconciliation process that’s just getting underway, which we expect to be a vehicle to move a number of the president’s bold ideas forward.”

Which companies are in focus?
  • GameStop Corp.
    said Tuesday it has completed an at-the-market equity offering after issuing 5 million shares to raise about $1.126 billion. The videogame retailer and leading meme stock said it would use the proceeds for the catchall general corporate purposes and for growth initiatives. Shares rose 6.3%.

  • The European Commission said it opened a formal antitrust investigation to assess whether Alphabet Inc.’s 

    Google has violated European Union competition rules by favoring its own online display advertising technology services. Shares were up 0.5%.

  • Blackstone Real Estate Income Trust Inc., a real-estate investing platform managed by a unit of private-equity firm Blackstone Group Inc. 
    announced Tuesday that it would acquire Home Partners of America in a deal valuing the company at $6 billion. Blackstone shares rose 0.3%.

  • Delta Air Lines Inc.
    plans to hire more than 1,000 pilots by next summer, according to multiple news reports. Citing an internal memo, Reuters and Bloomberg News separately reported that the airline looks to increase the number of pilots by about 8%, anticipating a recovery in air travel over the next year as international travel restrictions ease. Shares were down 0.6%.

  • Shares of Sanderson Farms Inc.
    rose 9.9%, after The Wall Street Journal reported the third-largest U.S. chicken producer has tapped Centerview Partners for advice on a potential sale and has attracted interest from suitors, including agricultural investment firm Continental Grain Co.

  • Korn Ferry
    shares rose 7.6% after the consulting firm swung to a record fiscal fourth-quarter profit that exceeded expectations, and provided an upbeat outlook for the current quarter.

  • Shares of Plug Power Inc.
    rose 12.7% after the hydrogen fuel cell company reported a wider-than-expected first-quarter loss but revenue that rose above expectations as product revenue more than doubled.

What are other markets doing?
  • Bitcoin
    broke below the $30,000 threshold for the first time since January on Tuesday, adding to a price drop that has wiped out more than $1.3 trillion in market value for the broader crypto complex since a peak in May. Bitcoin was trading around $32,600 on Tuesday afternoon.

  • The yield on the 10-year U.S. Treasury note
    edged down to about 1.48%. Yields and debt prices move inversely to each other.

  • The ICE U.S. Dollar Index
    a measure of the currency against a basket of six major rivals, declined 0.2%.

  • Oil futures were slightly lower after Brent crude briefly traded above the $75-a-barrel threshold for the first time in two years. The U.S. benchmark
    was down 0.2% at $72.97 a barrel on the New York Mercantile Exchange.

  • Gold futures
    edged lower, settling 0.3% lower at $1,777.40 an ounce.

  • In European equity trading, the pan-Continental Stoxx Europe 600
    closed 0.3% higher and London’s FTSE 100
    gained 0.4%.

  • In Asia, the Shanghai Composite
    rose 0.8%, the Hang Seng Index
    fell 0.6% in Hong Kong, and Japan’s Nikkei 225
    jumped more than 3%.

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