Stocks and index ETFs continued to follow through on Thursday amid revenue guidance, concerns about a crisis in China’s property market abating somewhat, and the post-FOMC reaction to the Federal Reserve’s pledge to maintain current monetary stimulus for a bit longer.
After selling off for over 5% this month, the major stock market indexes have rebounded more than half of those losses over the past couple of sessions. The Dow Jones Industrial Average climbed 1.62% as of just after 12:30 PM EST, while the S&P 500 added 1.35%, and the Nasdaq Composite gained roughly 1%.
While stocks had been down on the week and the month, the Thursday climb drove the Dow and S&P into the green for the week, up 0.5% and 0.4%, respectively. The Nasdaq is still off marginally, down 0.1% on the week.
Stock index ETFs are benefiting from the move in their underlying indexes as well. The SPDR Dow Jones Industrial Average ETF (DIA) and the SPDR S&P 500 ETF Trust (SPY) are both rallying on Thursday, while the Vanguard Total Stock Market ETF (VTI) and the iShares Core S&P Mid-Cap ETF (IJH) also made solid gains.
Revenue guidance seemed to boost stock sentiment as well, with Salesforce helping indexes, thanks to a 5% gain after the cloud company increased its full-year 2022 revenue outlook, while Darden Restaurants surged over 5% after reporting robust quarterly earnings.
Bank stocks, which are typically viewed as cyclical stocks whose performance is tied to the path of the economy, rose as Treasury yields climbed higher. JPMorgan, Bank of America, and Citibank added about 3%. Regional banks, which tend to trade closely along with the 10-years, like Regions and Fifth Third, gained more than 4%.
Meanwhile, Hong Kong’s Hang Seng index also recovered some of its losses this week, with Chinese property developer Evergrande Group climbing 17%. On Wednesday, the company mitigated worries somewhat by resolving payment on a local bond.
Local officials described the signals from Chinese authorities as “getting ready for the possible storm” and said that the government warned them that they should only intervene if necessary to curb problems from Evergrande’s demise, a WSJ report said. International investors are still uncertain as to whether the company will pay $83 million in interest on a U.S. dollar-denominated bond due Thursday.
Stocks seem to be shaking off jobs data, however, as on Thursday the Labor Department reported that initial jobless claims climbed last week as the U.S. labor market continues its recovery from last year’s recession. There were 351,000 claims last week, which was about 10% more than the projected estimates of 320,000. The reading for the week prior came in at 332,000.
After tentative action before the FOMC meeting Wednesday, investors drove stocks higher after the Federal Reserve opted to maintain current benchmark interest rates, while indicating no immediate plan to remove stimulus policies.
The Dow added 1% following the decision, having its first positive session in nearly a week and its best gain since July 20. The S&P climbed a similar 0.95%, breaking a four-day losing streak and registering its best day since July 23. Meanwhile, the Nasdaq Composite ended the session up over 1%.
“If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted,” a statement from the Fed following the meeting read. No timeline was given, however.
The central bank began its $120 billion per month bond-buying program in 2020 as the pandemic slammed the economy. As the economy appears healthier, a number of Federal Open Market Committee members now envision the first rate hike happening in 2022.
Analysts expressed optimism over the Fed meeting and subsequent reaction.
“The Fed struck a positive tone, acknowledging that the economy is strong enough to stand on its own two feet and the central bank can begin removing the monetary stimulus that they’ve been providing since the beginning of the Covid crisis,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
“Although there may be some additional turbulence this fall, we are constructive on the US economy in general and believe that any dips would be worth buying as the fundamentals are still sound and recession appears to be more than a year away at this point,” Zaccarelli added.
“We believe the S&P 500 has further room to run, but one of the biggest downside risks stems from valuations amid the prospect of higher yields/ERPs, less liquidity and slower growth,” UBS said in a recent note to clients.
Other analysts also see the reaction as positive but understand that there are still risks to consider.
“The market and investors’ reaction really was an understanding and a belief that ultimately, raising interest rates suggests that there’s a strong economy,” James Bruderman, vice chairman at 1879 Advisors, told Yahoo Finance Live on Wednesday.
“That doesn’t mean that longer-term interest rates are going to go up overnight, but certainly I think there is downside risk in bonds from these levels for the foreseeable future,” Bruderman added. “I think that from an economic standpoint, equities continue to be poised to do really well. I mean, we’re not going to see the growth in the GDP that we’ve seen up to this point in time, but we see no reason why GDP growth of 3%, 2.5% over the next three or four can’t be sustained, and we think that’s very powerful for equities.”
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