S&P 500, Nasdaq Hit New Record Highs As Vaccine Rally Continues—But Here's What Investors Are Focused On Next

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Topline

The stock market ticked up to record highs again Tuesday as investor fervor continued over the Food and Drug Administration’s full approval of Pfizer’s Covid-19 vaccine, allowing investors to turn their attention to the Federal Reserve’s looming economic symposium, which is set for Friday and could reveal how long officials plan to keep up the unprecedented monetary policy efforts that have boosted stocks during the pandemic.

Key Facts

The S&P 500 climbed 0.2% to 4,486 points on Tuesday, surpassing a record high from last Monday, while the tech-heavy Nasdaq jumped 0.5% to clinch a new record of 15,019 points.

Reflecting ongoing optimism over an economic recovery, a slew of leisure and energy stocks headed up the S&P’s gains, with Wynn Resorts, Las Vegas Sands and Devon Energy climbing 8%, 7% and 5%, respectively.

“It’s off to the races as stocks extend their gains,” market analyst Adam Criasfulli, the founder of Vital Knowledge Media, wrote in a Tuesday email, attributing the optimism to Pfizer’s vaccine approval and hopes that Fed Chair Jerome Powell won’t announce a dramatic policy shift at the central bank’s annual Jackson Hole summit on Friday.

“If there’s a reason for the rally, it’s the growing sense that the Fed won’t taper as aggressively as some had feared,” market analyst Tom Essaye, author of the Sevens Report, wrote in a Tuesday email, calling whatever the Fed ultimately decides to do with policy the “next major variable” for the market. 

On Monday morning, the Fed announced its highly anticipated symposium would be held virtually because of rising Covid-19 cases, a precaution Essaye and Crisafulli said might signal the Fed’s belief that it’s too early in the recovery to begin cutting relief.

Essaye says the Fed will hint at a coming stimulus reduction on Friday—as it’s done in recent market-moving announcements—but doesn’t expect policy specifics until the central bank’s next committee hearing on September 22.

Key Background

The stock market started to recover from its massive Covid-19 crash last year on the day Fed Chair Jerome Powell pledged to use the central bank’s “full range of tools to support the U.S. economy” until “substantial further progress” is made toward a full economic recovery. Since then, the Fed’s been buying $120 billion in bonds each month and keeping interest rates at historically low levels to prop up the market. Last week, investors got a taste of what a change in monetary policy could mean for markets, when stocks (briefly) tanked after Fed officials signaled it may ease support later this year to combat rising inflation. Though they’ve since rallied again, the S&P and Dow had their worst week in two months after the announcement. 

What To Watch For

When—and by how much—the Fed eases its monthly asset purchases. In a Monday morning note to clients, Goldman Sachs analysts said they believe the Fed will formally announce a reduction of about $15 billion by November. Essaye says such an amount could spark a “knee-jerk” drop in stocks, but isn’t too worried about its long-term implications. If the Fed begins tapering at a rate of $30 billion each month, however, Essaye says stocks would drop sharply, led by those in sectors hardest-hit by the pandemic, including energy, materials and consumer discretionary.

Further Reading

FDA Approves Pfizer Coronavirus Vaccine (Forbes)

China Stock Rally Adds $80 Billion In Market Value To U.S.-Listed Companies—But They’ve Still Lost $300 Billion This Year (Forbes)

Pfizer And Moderna Rally After FDA Grants Full Approval To Pfizer’s Covid-19 Vaccine (Forbes)