U.S. stock benchmarks found higher ground Wednesday afternoon, helped by positive economic data, even as investors remain fixated on next week’s Federal Reserve meeting.
Video: Stocks expected to open higher after S&P 500 wrapped positive Monday (CNBC)
Uncertainties have grown about the central bank’s monetary-policy plans, but also around how President Joe Biden’s $3.5 trillion budget bill fight in Washington will shake out for Wall Street.
- The Dow Jones Industrial Average climbed 248 points, or 0.7%, at 34,826.
- The S&P 500 index traded 35 points, or 0.8%, higher to reach 4,478.
- The Nasdaq Composite Index rose about 94 points, or 0.6%, to 15,132.
On Tuesday, the Dow industrials dropped 292.06 points, or 0.8%, to finish at 34,577.57, the S&P 500 index fell 25.68 points, or 0.6%, to 4,443.05 and the Nasdaq Composite fell 67.82 points, or 0.5%, to 15,037.76.
What’s driving the market?
Stocks were trading near session highs Wednesday afternoon, despite expectations that a choppy market likely will be the new normal until next week’s policy meeting of the Federal Open Market Committee.
“It’s very hard [for the market to rise] in advance of the FOMC meeting,” Kristina Hooper, chief global market strategist at Invesco, said in a Wednesday morning phone interview.
“These are stomach churning days and we think it’s going to be very hard to gain any type of substantial positive momentum,” Hooper said. The Fed’s FOMC gathering is Sept. 21-22.
September also tends historically to be a down month for the U.S. stock market and the Dow and S&P 500 have lost ground for six of the last seven days, while the Nasdaq has posted five straight days of losses. For September, the Dow is off by more than 2% and the S&P 500 and Nasdaq Composite are down about 1.5%.
With the help of peak “everything,” including fiscal stimulus from Washington and corporations raking in record profit, the S&P 500 already has powered about 19% higher this year, according to FactSet.
“I think most investors have been expecting a pretty decent market this year because of the reopening of the economy,” said Carin Pai, head of portfolio management, at Fiduciary Trust International, in a phone interview. “But to see almost a 20% return on the market so far this year, that probably has been better than what most people expected.”
Pai now thinks the scuffle in Washington over plans by the Biden administration’s $3.5 trillion budget, which aim trillions’ of dollars at bolstering American families and the nation’s aging infrastructure, is a key focus for investors, namely in terms of how corporate taxes shake out.
House Democrats this week proposed bumping corporate taxes up to 26.5% from the current 21% rate to help fund Biden’s budget, which would be less than the initial 28% level proposed.
“A lot of what originally was proposed has been dialed back to get through reconciliation,” Pai said, of Biden’s ambitious plans to retool the U.S. economy.
Investors are also sensitive to the fallout from the COVID pandemic, which is threatening to slow global economic growth, as the delta variant has fueled surging cases in the U.S. and other countries.
Invesco’s Hooper also said the Fed has done a fairly good job in communicating its intention to taper its $120 billion in monthly purchases of Treasurys and mortgage-backed securities and that Chairman Jerome Powell also has emphasized the decoupling of tapering from eventual interest rate increases.
“The Fed has done a good job messaging but we just don’t have exact dates,” the Invesco strategist said, speculating that the beginning of tapering might come in October if not November.
In economic data, the New York Fed’s Empire State business conditions index surged 16 points to 34.3 in September, the regional Fed bank said Wednesday. Economists had expected a reading of 17.2, according to a survey by The Wall Street Journal. The index stood at 18.3 in August. Any reading above zero indicates improving conditions.
Separately, the import price index dropped 0.3% last month, the government said Wednesday, marking the first decline in 10 months. The drop was mostly attributed to the lower cost of foreign oil and industrial supplies.
And data on U.S. industrial production showed a 0.4% rise in August after a 0.8% gain in the prior month, the Federal Reserve reported Wednesday. The gain is below economist expectations of a 0.5%, according to a survey by The Wall Street Journal.
Which companies are in focus?
- Shares of Microsoft Corp. rose 1.5% in Wednesday trade. The technology giant late Tuesday lifted its quarterly dividend by 11% and the company’s board agreed a new stock buyback plan of up to $60 billion.
- Shares of Las Vegas Sands were down 3.2% and those for Wynn Resorts skidded 8%, while MGM Resorts shares declined 3.3%. The losses came after casino shares slumped in Macau on indications the local government aims to more closely supervise those companies.
- Kansas City Southern formally picks Canadian Pacific over Canadian National Shares of Kansas City were up 1%, CP’s shares were up 1.3%, while those for CNI gained 3.2%.
- Share of Apple Inc. were up 0.1% after the iPhone maker debuted a series of updates to its suite of mobile phones and its Apple watch.
- Exxon and other energy stocks gained as crude oil prices rose sharply Wednesday as weather in the U.S. Gulf has reduced output.
How are other assets trading?
- The yield on the 10-year Treasury note rose 3 basis points to 1.31%. Yields and debt prices move in opposite directions.
- The ICE U.S. Dollar Index which measures the currency against a basket of six major rivals, fell 0.1% to 92.53.
- Oil futures were higher, with the U.S. benchmark rising 3.1% to $72.63 a barrel. October natural gas climbed 3.8% to $5.46 per million British thermal units.
- In European equities, the Stoxx Europe 600 index closed 0.8% lower, while London’s FTSE 100 index finished the session down 0.3%.