The blue-chip Dow Jones Industrial Average edged up to another record close Wednesday, despite concerns about rising inflation and the eventual withdrawal of flush monetary policy as the economy reopens in the wake of the pandemic, though technology stocks fell for a fourth straight day.
Market participants also parsed dovish comments from Fed staffers and economic data showing a healthy economic recovery.
How did stock benchmarks perform?
- The Dow Jones Industrial Average DJIA,
+0.29%rose 97.31 points to close at a record 34,230.34, a gain of 0.3%, after also setting an intraday record of 34,331.20. That marked its 22nd record of the year, matching last year’s record finishes.
- The S&P 500 index SPX,
+0.07%added 2.93 points, or 0.1%, finishing at 4,167.59.
- The Nasdaq Composite Index COMP,
-0.37%fell 51.08 points, or 0.4%, to end at 13,582.42, a 4th day of losses and its longest losing streak since the five-day stretch booked on Oct. 19.
On Tuesday, the Dow DJIA,
What drove the market?
The Dow touched a intraday and closing record Wednesday, as stocks outside of the tech sector recovered some of Tuesday’s losses, helped by better-than-expected corporate earnings reports and some supportive economic data.
But the prospects of an eventual withdrawal of pandemic-era liquidity from the Federal Reserve also weighed on the market.
“If you think about the last year, its been highly accommodative monetary policy across the board, with aggressive fiscal stimulus to fight the pandemic,” said Matt Stucky, an equities portfolio manager at Northwestern Mutual.
Those things were “right to do,” Stucky said, but added that investors have been coming to grips with the notion that crisis-levels of liquidity are unlikely to last forever.
“It’s not just today and yesterday, it’s been a factor for the last couple of weeks,” he told MarketWatch.
The overall message from Fed staffers on Wednesday was to expect the go-slow strategy to continue, and that more healing needs to happen in the economy before the central bank will consider reducing its extensive support for markets.
Cleveland Fed President Loretta Mester said the job market will need to make further improvements before the Fed’s conditions for reducing its support are met, while speak Wednesday at the Boston Economic Club.
Boston Federal Reserve President Eric Rosengren said that temporary factors will push measured inflation higher this spring, but the distortions won’t last long, echoing comments made Wednesday by Chicago Fed President Charles Evans.
Investors also were focused on economic data, with the Institute for Supply Management reporting growth in service-oriented businesses, such as retailers, restaurants and healthcare providers slipped to 62.7% last month from 63.7% in March.
That contrasts with an increase in the IHS Markit service sector purchasing managers index for April to 63.5, up from 59.7 in March, marking the sharpest upturn in private sector output since data collection began in October 2009, the data-provider said.
On the jobs front, the U.S. gained 742,000 private-sector jobs in April, according to data from Automatic Data Processing, below the 800,000 increase economists polled by The Wall Street Journal and Dow Jones expected.
Still, the labor-market reading was seen as strong and unlikely to derail Friday’s possibility of a 1 million print for nonfarm payrolls gains for April from the U.S. Labor Department, some analysts said.
“While the ADP read may have come in lower than expectations, keep in mind this is the highest number we’ve seen since the beginning of the fall,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial, in emailed comments.
“So we’re definitely moving in the right direction. And with hospitality and leisure jobs leading the pack, we’re seeing proof that the economy is moving toward full reopening, albeit slightly slower than some expected,” the strategist added.
Fears that the economy may overheat and inflation may rise bubbled back to the surface Tuesday after Yellen, the former head of the Federal Reserve and now U.S. Treasury Secretary, suggested that interest rates may need to rise to prevent prices from rising too quickly. However, Yellen clarified her remarks to say she wasn’t predicting nor recommending that the Fed raise rates, while speaking at an event hosted by The Wall Street Journal’s CEO Council Summit.
Analysts also pointed out that equity markets are trading near records and may be been vulnerable to a pullback, following a period of sustained gains as the public health crisis has eased in the U.S.
“Big tech has obviously been under a microscope for quite some time now. And with relatively high valuations, it’s not surprising to see investors looking for opportunities elsewhere,”E-Trade’s Loewengart told MarketWatch. “So with inflation fears reemerging, tech continues to have the potential to take the brunt of those jitters,” he said.
On the public health front, President Joe Biden on Tuesday announced a new goal of getting 70% of U.S. adults vaccinated with at least one COVID-19 vaccine dose by the Fourth of July, along with having 160 million adults fully vaccinated by that holiday.
The Biden administration on Wednesday said it backed waiving intellectual property protections for COVID vaccines, to “help end the pandemic,” after being urged by by lawmakers at home and governments abroad to aid poorer countries in the effort to produce generic versions of the shots as the global caseload soars. Shares of vaccine makers Moderna, Inc. MRNA,
Which companies were in focus?
- General Motors Co. GM,
+4.05%rose 4.1% after the automaker reported first-quarter profit that was more than double what was expected, while revenue surprisingly declined and the full-year outlook was a bit shy of forecasts.
- Boeing Co. BA,
-2.33%shares fell 2.3%, after Reuters reported that U.S. air safety officials requested fresh analysis and documentation from the company showing numerous 737 MAX subsystems would not be affected by electrical grounding issues flagged previously.
- Honest Co. HNST,
+43.75%shares roared 43.8% higher on their debut Monday, after the diaper and makeup company founded by actress Jessica Alba priced its initial public offering at $16 a share late Tuesday, near the top of its range.
- Shares of Lumber Liquidators Holdings Inc. LL fell 6.7% Wednesday, after the wood flooring retailer reported first-quarter profit that beat expectations but sales that came up short, as results continued to be impacted by tariffs on certain products imported from China.
- Hilton Worldwide Holdings Inc. shares HLT slid 4.4% Wednesday, after the hotel chain’s earnings fell short of estimates, as the coronavirus pandemic continued to weigh on demand in January and February.
- Shares of Fresh Del Monte Produce Inc. FDP rose 20% Wednesday, after the fresh fruit and vegetables producer reported a first-quarter profit that more than tripled from a year ago, even as sales slipped given continued COVID-19 restrictions on food service customers and given hurricane-related supply disruptions.
- Shares of AmerisourceBergen Corp. ABC fell 5.6% Wednesday, after the pharmaceuticals and healthcare products company reported a first-quarter profit that beat expectations but revenue that came up a bit light.
- Shares of ODP Corp. ODP rose 8.8% Wednesday after the office supply retailer announced plans to separate into two independent, publicly traded companies.
- New York Times Co. shares NYT declined 3.8% Wednesday, after the newspaper group beat earnings estimates for the first quarter and offered upbeat guidance for the second quarter.
- Facebook’s FB,
-1.05%oversight board upheld the company’s decision to restrict former President Donald Trump’s access to Facebook and Instagram on Wednesday, but said that the company must clarify whether it intends the penalty to be permanent or temporary. Shares closed 1.1% lower.
- Shares of Peloton Interactive Inc. PTON took a 14.6% dive Wednesday, reversing an earlier intraday gain of as much as 2.2%, after the at-home-fitness company said it was voluntarily recalling about 125,000 Tread+ treadmills, citing “risk of injury or death.”
How are other markets fare?
- In Europe, the Stoxx Europe 600 SXXP closed up 1.8%, recovering some of its decline from Tuesday, while London’s FTSE 100 UKX, added 1.7%.
- The 10-year Treasury note yield TMUBMUSD10Y shed 0.07 basis points to 1.584%.
- The greenback was little-changed, at around 91.27, based on the ICE U.S. Dollar Index DXY.
- Gold futures GC00 rose $8.30, or 0.5%, to settle at $1,784.30 an ounce on Comex. U.S. crude futures CL.1 fell 6 cents, or nearly 0.1%, to settle at $65.63 a barrel on the New York Mercantile Exchange, heading for a third straight gain.
- In Asian trade, Hong Kong’s Hang Seng Index HSI fell 0.5%. Bourses in Shanghai and Tokyo were closed.