Stock futures held gains after the stocks’s best day since July, with major indices trying to shake off previous volatility and end the week on a good note. The S&P 500 was trading toward a weekly gain of 0.4% at the close of trading on Thursday.
Equity investors have managed to overcome worries over China Evergrande’s debt crisis, uncertainty over monetary and fiscal policies, and ongoing debates in Washington over the debt ceiling for higher trade.
Cyclical stocks including industrial, energy and financial sectors outperformed this week after the Federal Reserve signaled that the economic recovery was “making progress” towards the central bank’s employment and inflation targets. The Fed has now also prepared the markets to reduce their asset purchases as early as November in light of the improving economic environment.
“I’m not surprised that the Fed is moving forward with tapering,” said Jeff Schulze, ClearBridge’s chief investment strategist. Yahoo Finance Live said on Thursday. “When you think of the three-month moving average … we’re about 740,000 jobs created per month. That’s stronger than anything we’ve seen before COVID.”
“For the first time in a long time, markets are cheering for a slightly more restrictive Fed,” he added. “Participants are realizing that we are moving past the peak of Delta. They will see a very strong re-acceleration over the next few quarters and that will go a long way in driving profits.”
Government bond yields jumped the curve on Thursday, with the 10-year benchmark yield hitting its highest level since July at over 1.41%. The rise in yields did not seem to alarm equity investors, however, nor did it weigh on some of the technology and growth stocks that had suffered badly in the wake of the rate hikes earlier this year. The Nasdaq closed more than 1% higher
Mark Haefele, UBS Global Wealth Management’s chief investment officer, said, with Treasury yields still low during the pandemic, “Just more than a 50 increase in real yields [basis points] more than three months would likely weigh on stock returns, especially in emerging markets. ”
Other pundits also pointed to the Fed’s more constructive view of the recovery as the main factor helping to send stocks on to a rally at the end of the week.
“A restrictive Fed was surprisingly welcomed by equity markets as it was seen as confirmation of the continued strength and ‘significant progress’ the economy made in recovering from the COVID shock,” Anu Gaggar, global investment strategist for Commonwealth Financial Network, wrote in an email.
“While we’re far from the end of [quantitative easing] and rates near zero seem to be changing the tide, “added Gaggar.” So far the market has welcomed bad news as good news, but a market responding to signs of an economy that is without the monetary crutches is a refreshing change.
6:27 p.m. ET Thursday: Stock futures hold on to gains
Here were the main moves in the Thursday evening markets:
- S&P 500 futures (ES = F): +3.25 points (+ 0.07%), to 4,441.25
- Dow futures (YM = F): +15 points (+ 0.04%), to 34,659.00
- Nasdaq Futures (NQ = F): +2.5 points (+ 0.02%) to 15,306.00