Stock Index ETFs Are Mixed To Higher After Powell Testimony

Stock markets are mixed Wednesday, moving within Tuesday’s range as investors watched Federal Reserve Chairman Jerome Powell deliver his second day of semiannual testimony before Congress, in an appearance before the House Financial Services Committee.

After a robust move off of the lows on Tuesday, energized by an epic pop in retail sales combined with optimism over trial results from a potential coronavirus treatment and dreams of additional stimulus from the Fed, stocks curbed their gains to settle into a wide trading range, still below recent highs last week.

While the Dow Jones Industrial Average rallied almost 650 points higher, or 2.5% on Tuesday, and the S&P 500 added 2.15% while the Nasdaq Composite gained 1.93% yesterday, Wednesday’s gains are more modest as of early afternoon. The Dow added 0.17%, the S&P 500 gained 0.40%, while the Nasdaq leads all indices, up 0.88%.

Stock index ETFs are rallying along with the underlying benchmarks. The  SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are tracking stock indexes as well, all positive 130pm EST.

Much of this stock market rally has been amid assurances from the Federal Reserve that it will bolster a still fragile stock market that has been plagued for months by the economic fallout from the Covid-19 pandemic. While the Fed has initiated several programs, including fiscal stimulus measure and bond purchases, Powell now suggests that some of this assistance may slow or come to a halt as markets begin to show more significant signs of fortitude and that the programs are simply there to ensure proper market functioning.

“The markets are working,” Powell said. “Companies can borrow, people can borrow. Companies are not showing tons of financial stress, and they’re less likely to take cost-cutting measures, things like that.”

While there has been enthusiasm that has spilled over into the ETF space, under the guise that the Federal Reserve will buy up ETFs as well, the Fed’s historic corporate bond purchasing program eventually will involve largely individual company debt rather than exchange-traded funds, Federal Reserve Chairman Jerome Powell said Wednesday.

“Over time we’ll gradually move away from ETFs and move to buying bonds,” Powell said. “It’s a better tool for supporting liquidity and market functioning.”

He reiterated his stance that “we’ll put the tools away” including the corporate bond program after they are no longer needed to support markets. In addition to corporate bonds, the Fed also is purchasing a minimum of $80 billion in Treasurys and $40 billion in mortgage-backed securities each month.

The Vanguard Total Bond Market Index Fund (BND) fell slightly amid the news but is still more or less flat on the day.

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