NEW YORK (AP) – The S&P 500 continues to hit record highs on Thursday after the Federal Reserve made a major overhaul of its strategy, one that could keep interest rates low for longer.
The benchmark index rose 0.2%, after another very full time, but it ran through a messy day of trading to get there. Stock prices, bonds and gold all made several U-turns after Fed Chairman Jerome Powell gave a highly anticipated speech. In it, he said in essence that the Fed can continue efforts to support the economy, even if inflation exceeds its target level of 2%, as long as it was weak for that time.
The change in the Fed’s strategy is a huge deal for markets. The central bank has repeatedly rescued the superhero from crises over the years, by lowering short-term interest rates and buying all kinds of bonds. The important announcement was widely expected on Wall Street, if not on Thursday then later this year, but trading was irregular after that.
The Dow Jones industrial average climbed 160.35 points, or 0.6 percent, to 28,492.27 after rebounding from an earlier gain of 302 points. The Nasdaq composite, meanwhile, fell 39.72 points, or 0.3%, to 11,625.34 after mating an earlier loss of 1%.
The benchmark S&P 500 gained 5.82 points to 3,484.55 to set a closing record for the fifth straight day. It has risen nearly 56% since the end of March after the immense support of the Fed helped stop its earlier free fall and wipe out its pandemic losses. Low rates often act as steroids for stocks, making their prices rise faster than corporate profits.
“The era of easy money is here,” said Mike Loewengart, director of investment strategy at E-Trade Financial.
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Treasury revenue fell immediately after Powell began talking, but then began to bounce up and down. Yields on the 10-year treasury were up 0.74% after shares stopped trading on Wall Street, up 0.68% at the end of Wednesday. The 30-year yield climbed from 1.41% to 1.50%.
Treasury short-term yields were more repressed, with the two-year yield holding at 0.14%. The widening gap between short- and long-term returns may be an indication of higher expectations for the economy than inflation among investors.
Gold for delivery in December fell $ 19.90 to settle at $ 1,932.60 per ounce. Earlier, it had jumped to $ 1,968.80 after Powell started talking. Lower Treasury yields may drive demand for gold from investors seeking security but not interested in the lower interest payments coming from bonds.
Earlier in the morning, a report showed that the rate of layoffs sweeping the country remains incredibly high but could slow down. A little over 1 million U.S. workers applied for unemployment benefits last week, which was a dip from just over 1.1 million the previous week.
“It puts a spotlight on the heavy lifting that the economy needs to get people back into the job market,” said Marvin Loh, senior global macro strategist at State Street.
He said investors still bank on Congress providing another round of aid to the economy, which could include benefits for unemployed workers. Much of Congress’ last stimulus round has passed, and investors say a renewal is critical, although partisan disagreements have prevented a deal.
“It’s a necessary result that should come from Washington sooner,” Loh said.
In another report, the government also said the economy looks set to shrink in the spring quarter with an annual rate of 31.7%. That would be the sharpest quarterly decline on record, but it’s not as bad as the Department of Commerce’s previous estimate of 32.9%.
Abbott Laboratories jumped 7.8% for one of the biggest gains in the S&P 500 after federal regulators gave emergency approval for its COVID-19 test, which can deliver results in 15 minutes and cost only $ 5 .
Shares of companies that need people to feel comfortable enough with the pandemic to return to “normal” life were also strong. Live Nation Entertainment increased 8.8%, Norwegian Cruise Line was up 5.9% and United Airlines was up 5.8%.
Financial equities had the largest gain among the 11 sectors that make up the S&P 500, up 1.7%. A higher 10-year Treasury yield results in higher rates on mortgages and other loans, which stimulates profits for banks. JPMorgan Chase won 3.3%, and Wells Fargo rose 2.3%.
Counterbalancing those gains were losses for some large tech and Internet companies, which gave back some of their slingshot, previous gains. Apple slipped 1.2%. It comes from four straight weeks where it went up by 3% to 14.7%.
In European equities, the German DAX lost 0.7%, and France’s CAC 40 slipped 0.6%. The FTSE 100 in London was 0.8% lower.
In Asia, the Japanese Nikkei 225 slipped 0.4%, and the South Korean Kospi lost 1%. Hong Kong’s Hang Seng fell 0.8%, while Shanghai’s shares rose 0.6%.
Benchmark U.S. crude fell 35 cents to pay $ 43.04 a barrel. Brent raw, the international standard, lost 55 cents to $$ 45.09 per barrel.
