Dow, S&P 500 and Nasdaq edge higher ahead of Fed update as 10-year yield tests 1.3%

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B y Joy Wiltermuth and Mark DeCambre

U.S. stocks edged higher, shrugging off earlier losses in volatile trade Wednesday, ahead of the release of the minutes of the Federal Reserve’s June policy meeting which will be searched by investors for further insights on the timing of a tightening in monetary policy as the economy recovers from the pandemic.

What are major indexes doing?

On Tuesday, the Dow fell 208.98 points, or 0.6%, to close at 34,577.37. The S&P 500 ended the day down 0.2%, snapping a string of seven consecutive record closes — the longest such run since an eight-day streak ended in 1997. The Nasdaq Composite edged up 0.2% for its 21st record finish of 2021.

What’s driving the market?

Investors were focused on the pace of the U.S. economic recovery and the future of extremely supportive monetary policies ahead of the afternoon release of minutes of the central bank’s mid-June rate-setting meeting.

At its June 15-16th meeting, policy makers moved up their forecasts for a policy interest rate increase (link) and began talking about when it would be appropriate to discuss the unwinding of its asset purchases of $120 billion a month, which should be a drag on Treasury rates.

Investors have heard from virtually every Fed official since the meeting, leaving the market with a good sense of where the central bank stands, some analysts have said. The Fed has signaled that it wants to see more good monthly employment reports before scaling back purchases of $120 billion a month in Treasurys and mortgage-backed securities and raising interest rates, which currently stand at a range between 0% and 0.25%.

Read: June jobs report bolsters case for Fed to start slowing down bond-buys this year (link)

“First, we are still looking for a definition of ‘significant further progress’ in the labor market. I would like to hear how the Fed is framing this up,” Gene Tannuzzo, global head of fixed income at Columbia Threadneedle Investments, wrote in emailed comments ahead of the minutes release.

“Secondly, we would like to learn more about the conversation that led many Fed members to revise up their interest rate expectations,” Tannuzzo said, adding that if the Fed is growing more confident about the labor-market recovery, “this could spook the market into thinking rates should be higher.”

A Labor Department report Wednesday showed job openings in the U.S. rose to a record 9.21 million in May, reflecting a rising demand for labor as the economy fully reopens and businesses scramble to keep up with soaring sales for their goods and service.

“Hiring is still a problem though as they fell by 85,000 in May and after a sharp jump in the two prior months of 609,000, the number of quitters fell by 388,000, wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, in a daily note.”

Bottom line, we’ll of course see how these numbers mesh in coming months as kids go back to school, enhanced unemployment benefits expire and the vaccine gets further rolled out, but of course at a sharply slowing pace,” he said.

The report on job availability (link) has set a record for three straight months and may be starting to shake the confidence of investors anticipating a robust economic bounceback from the COVID-19 pandemic.

Those concerns have been reflected, at least partly, in a recent slump in longer-dated bond yields.

The decline in Treasury yields, with the 10-year Treasury note falling to the lowest since February at a rate below 1.3% on Wednesday, had emboldened buyers in yield-sensitive segments of the stock market, like companies in the technology-heavy Nasdaq Composite and growth stocks. However, markets may be growing concerned that buying government bonds implies that some investors harbor doubts about the stock market’s ability to deliver further record rallies.

Bank shares were mixed, with Goldman Sachs (GS) stock lower and JPMorgan Chase (JPM) advancing modestly, as investors consider the possibility of lower bond yields hurting the financial sector’s profitability.

Separately, crude-oil futures pivoted to a sharp decline from a modest gain in the wake of a disagreement within the Organization of the Petroleum Exporting Countries and their allies — a group known as OPEC+ — on raising output. WTI crude touched a six-year high briefly on Tuesday before retreating.

See:What the OPEC standoff means for oil prices and financial markets (link)

Investors also have grown wary of Chinese technology companies listed on U.S. markets as Beijing tightens its control over the country’s largest tech companies. Didi Global Inc. was down 6.5% Wednesday, after tumbling 19.6% on Tuesday in the wake of last week’s New York IPO.

Which companies are in focus?

How are other assets trading

William Watts contributed reporting

-y Joy Wiltermuth; 415-439-6400; AskNewswires@dowjones.com

 

(END) Dow Jones Newswires

07-07-21 1205ET

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