Megacap tech stocks led the SP 500 marginally higher and bond yields fell as investors turned to defensive favorites with Federal Reserve Chairman Jerome Powell making the case for maintaining economic stimulus.
The SP 500 closed slightly higher with Powell emphasizing in Congressional testimony that the U.S. economic recovery still hasn’t progressed enough to begin scaling back asset purchases.
Apple, Google parent Alphabet and Microsoft hit record highs. Bank of America dropped after second-quarter earnings failed to impress investors, while Wells Fargo Co. gained.
The 10-year U.S. Treasury yield retreated below 1.4% and the dollar declined. Powell added that inflation is likely to remain high in coming months before moderating.
“This supports our view that the Fed wants the economy to run hot and will tolerate a near-term overshoot in inflation,” said Steven Ricchiuto, U.S. chief economist at Mizuho Americas.
A report earlier showed prices paid to U.S. producers rose in June by more than expected, indicating pressure is mounting on companies to pass along higher costs to consumers.
The June U.S. consumer inflation print on Tuesday topped all forecasts and pointed to higher costs associated with the reopening from the pandemic. Powell reiterated that Fed officials expect such pressures to be transitory but some commentators see a risk of more durable increases that could force a quicker-than-expected reduction in stimulus.
“The Fed remains laser-focused on the employment situation,” said Ross Mayfield, investment strategy analyst at Baird. “So while the recovery in parts of the economy is totally complete and has even surpassed pre-covid levels, the fact that we’re still about 7 million short of pre-pandemic nonfarm payrolls, labor force participation is weak, and the unemployment rate is above 4-5% means the Fed will remain accommodative. But no doubt the inflation numbers are starting to put them in a bind.”
Global stocks remain close to a record and a range of other factors are influencing the outlook. They include the spread of the more contagious Covid-19 delta variant, the possibility of a peak in earnings and economic growth, and U.S. fiscal spending plans.
Oil fell with gasoline and distillate inventories rising as well as an increase in the U.S production during peak summer demand.
Here are some events to watch this week:
- Bank of Korea monetary decision Thursday
- Bank of Japan interest rate decision Friday
These are some of the main moves in financial markets:
- The SP 500 rose 0.1% as of 4:05 p.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average rose 0.1%
- The MSCI World index was little changed
- The Bloomberg Dollar Spot Index fell 0.5%
- The euro rose 0.5% to $1.1835
- The British pound rose 0.3% to $1.3859
- The Japanese yen rose 0.6% to 109.97 per dollar
- The yield on 10-year Treasuries declined seven basis points to 1.35%
- Germany’s 10-year yield declined three basis points to -0.32%
- Britain’s 10-year yield was little changed at 0.63%
- West Texas Intermediate crude fell 3.4% to $72.72 a barrel
- Gold futures rose 1% to $1,828.20 an ounce