S&P 500 inches closer to record high

US financial, energy and industrial sectors provided the biggest boost to the S&P 500 on Tuesday. (Shutterstock)
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Updated 12 August 2020

S&P 500 inches closer to record high

  • US stock market index returns to levels last seen before the onset of coronavirus crisis

NEW YORK: The S&P 500 on Tuesday closed in on its February record high, returning to levels last seen before the onset of the coronavirus crisis that caused one of Wall Street’s most dramatic crashes in history.

The benchmark index was about half a percent below its peak hit on Feb. 19, when investors started dumping shares in anticipation of what proved to be the biggest slump in the US economy since the Great Depression.

Ultra-low interest rates, trillions of dollars in stimulus and, more recently, a better-than-feared second quarter earnings season have allowed all three of Wall Street’s main indexes to recover.

The tech-heavy Nasdaq has led the charge, boosted by “stay-at-home winners” Amazon.com Inc., Netflix Inc. and Apple Inc. The index was down about 0.4 percent.

The blue chip Dow surged 1.2 percent, coming within 5 percent of its February peak.

“You’ve got to admit that this is a market that wants to go up, despite tensions between US-China, despite news of the coronavirus not being particularly encouraging,” said Andrea Cicione, a strategist at TS Lombard.

“We’re facing an emergency from the health, economy and employment point of view — the outlook is a lot less rosy. There’s a disconnect between valuation and the actual outlook even though lower rates to some degree justify high valuation.”

Aiding sentiment, President Vladimir Putin claimed Russia had become the first country in the world to grant regulatory approval to a COVID-19 vaccine. But the approval’s speed has concerned some experts as the vaccine still must complete final trials.

Investors are now hoping Republicans and Democrats will resolve their differences and agree on another relief program to support about 30 million unemployed Americans, as the battle with the virus outbreak was far from over with US cases surpassing 5 million last week.

Also in focus are Sino-US tensions ahead of high-stakes trade talks in the coming weekend.

“Certainly the rhetoric from Washington has been negative with regards to China ... there’s plenty of things to worry about, but markets are really focused more on the very easy fiscal and monetary policies at this point,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

Financials, energy and industrial sectors, that have lagged the benchmark index this year, provided the biggest boost to the S&P 500 on Tuesday.

The S&P 500 was set to rise for the eighth straight session, its longest streak of gains since April 2019.

The S&P 500 was up 15.39 points, or 0.46 percent, at 3,375.86, about 18 points shy of its high of 3,393.52. The Dow Jones Industrial Average was up 341.41 points, or 1.23 percent, at 28,132.85, and the Nasdaq Composite was down 48.37 points, or 0.44 percent, at 10,919.99.

Royal Caribbean Group jumped 4.6 percent after it hinted at new safety measures aimed at getting sailing going again after months of cancellations. Peers Norwegian Cruise Line Holdings Ltd. and Carnival Corp. also rose.

US mall owner Simon Property Group Inc. gained 4.1 percent despite posting a disappointing second quarter profit, as its CEO expressed some hope over a recovery in retail as lockdown measures in some regions eased.

Advancing issues outnumbered decliners 3.44-to-1 on the NYSE and 1.44-to-1 on the Nasdaq.

The S&P index recorded 35 new 52-week highs and no new low, while the Nasdaq recorded 50 new highs and four new lows.


‘Lower for longer’: Fed’s warning on interest rates

Updated 24 September 2020

‘Lower for longer’: Fed’s warning on interest rates

  • The Fed cut rates to near zero in March and took other steps to combat a recession

WASHINGTON: Federal Reserve Vice Chair Richard Clarida said on Wednesday that policymakers “are not even going to begin thinking” about raising interest rates until inflation hits 2 percent, comments aimed at cementing the public’s understanding of the US central bank’s new approach to monetary policy.

“Rates will be at the current level, which is basically zero, until actual observed PCE inflation has reached 2 percent,” Clarida told Bloomberg Television, referring to the Fed’s preferred measure of prices. PCE inflation tends to be somewhat lower than the better-known consumer price index.

“We could actually keep rates at this level beyond that. But we are not even going to begin thinking about lifting off, we expect, until we actually get observed inflation equal to 2 percent. Also we want our labor market indicators to be consistent with maximum employment.”

The Fed cut rates to near zero in March and took other steps to combat a recession that took hold as businesses shut down and consumers stayed home to fight the spread of the coronavirus.

Clarida said that with further government aid from Congress and the steps the Fed has already taken, the US economy could return from the current “deep hole” of joblessness and weak demand in perhaps three years.

To aid that process, the Fed in late August revised its approach to monetary policy to commit to lower rates for longer periods of time, allowing the risk of higher inflation to try to encourage a stronger economic recovery and more job gains for workers. A follow-up policy statement last week gave more specific guidance about future decisions, but questions remain about what the new approach will mean in practice.

Clarida said there should not be any confusion: Rates will not increase until labor markets recover and prices hit the Fed’s target.

“So lower for longer, and we have given some observable metrics,” for judging when a rate hike debate might begin, he said.

Decisions about any possible overshoot of inflation are “academic” at this point, he added, and can be made once the economy rebounds.