Wall Street closed higher on Friday buoyed by Fed Chairman’s speech on the previous day and better-than-expected economic data. All three major stock indexes ended in the green. For the week as a whole, U.S. stock markets witnessed impressive rally.
How Did The Benchmarks Perform?
The Dow Jones Industrial Average (DJI) rose 0.6% or 161.60 points to close at 28,653.87.73, maintaining its winning streak for three successive days. Notably, 21 components of the 30-stock index ended in the green while 9 finished in red. The blue-chip index closed in positive territory year to date for the first time since Feb 21.
The tech-laden Nasdaq Composite ended in positive territory to close at 11,695.63, increasing 0.6%. This marked its 40th closing high this year so far. The major gainer of the Nasdaq Composite was Workday Inc. WDAY that jumped 12.6%. Workday carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Moreover, the S&P 500 gained 0.7% to end at 3,508.01, continuing its winning run for seven consecutive days. This was the first-ever close of the broad-market index above 3,500 level. The Energy Select Sector SPDR (XLE) and the Materials Select Sector SPDR (XLB) gained 1.8% and 1.2%, respectively. Notably, all eleven sectors of the benchmark index closed in positive territory.
The fear-gauge CBOE Volatility Index (VIX) was down 6.2% to 22.96. A total of 8.07 billion shares were traded on Friday, lower than the last 20-session average of 9.21 billion. Advancers outnumbered decliners on the NYSE by a 2.47-to-1 ratio. On Nasdaq, a 2.01-to-1 ratio favored advancing issues.
Fed’s Annual Jackson Hole Symposium
On Aug 27, in his annual Jackson Hole symposium speech, Fed Chairman Jerome Powell announced an important policy change of the central bank regarding inflation control. The newly adopted “average inflation targeting” policy will allow inflation and employment to run higher together for some time in order to support the pandemic-ravaged economy.
The Fed’s target of 2% inflation rate will remain unchanged. The policy adopted by the central bank so far was to hike the benchmark interest rate whenever the inflation reached 2% or every near that level and the unemployment rate fell to a historically low level.
However, under the new policy, the inflation rate will remain higher than 2% along with higher employment for some time. This inherently means that the benchmark interest rate, which is currently low in the 0 – 0.25% range, will remain at that level for a longer than-expected period.
Moreover, Powell has changed the Fed’s approach toward employment. Under the new approach, the jobs situation will be described by the Fed’s “assessments of the shortfalls of employment from its maximum level” rather than “deviations from the maximum level” followed earlier.
The Bureau of Economic Analysis reported that personal income in July rose 0.4% compared with a revised decline of 1% in the previous month. The consensus estimate was for a decline of 0.3%. Personal savings declined to 17.8% in July from a revised 19.2% in June. Personal spending, the largest driver of the GDP, grew 1.9% in July compared with a revised 6.2% in the previous month. However, the consensus estimate was 1.6%.
Meanwhile, the personal consumption expenditure (PCE) price index rose 1.6% in July compared with a revised 5.7% in June. Year-over-year, the PCE inflation grew 1%. the Core (excluding volatile food and energy items) PCE price index – Fed’s favorite inflation gauge – remained flat at 0.3% while the consensus estimate was 0.5%. Year-over-year, core PCE inflation increased 1.3%,well below the Fed’s target level of 2%.
The final reading the University of Michigan’s consumer sentiment index for August came in at 74.1 from a preliminary reading of 72.8. Notably, July’s final reading was 72.5. The final reading of the current condition sub-index was 82.9 compared with 82.5 in the preliminary reading. The expectations for the next six months sub-index climbed to 68.5 from a preliminary 66.5 reading in August and 65.9 in July.
Last week was an impressive one for Wall Street. The three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – rallied 2.6%, 3.3% and 3.4%, respectively. The S&P 500 completed its first five-week winning streak since late 2019. Notably, the benchmark gained in each and every day in the last week. The Nasdaq Completed its first five-week winning streak since the end of January.
A series of better-than-economic data, stabilization of new coronavirus cases, continuation of bull run of the technology sector and a massive change in the Fed’s policy of inflation control boosted investors’ sentiments.
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