U.S. stock benchmarks booked new records Monday, as investors appeared to wager that the Federal Reserve’s Chairman Jerome Powell will adopt a more dovish posture than previously anticipated when he speaks later this week at the annual Jackson Hole monetary policy symposium.
Last week, the Dow, S&P 500 and Nasdaq Composite each retreated.
Delta worries were on the back burner Monday, as bullish investors focused on the likelihood of dovish tones from the Federal Reserve later this week, but also positive developments on the COVID-19 front.
“It’s really a seesaw,” said John Carey, director for equity income at Amundi U.S., adding that the “bargain hunters” appeared to be out in force Monday on “a bit more optimism about the delta variant” in terms of signs that U.S. infections and hospitalizations might be cresting.
The U.S. also formally approved BioNTech BNTX, +9.58% and Pfizer’s PFE, +2.48% COVID-19 vaccine on Monday in a move that could sway some of the unvaccinated to get a shot. The Food and Drug Administration approval applies to people who are at least 16 years old, but emergency-use authorization still stands for those between 12 and 15 and for immunocompromised individuals who qualify for a third shot.
With the U.S. population still “a long way from achieving herd immunity,” the most likely outcome of the FDA approval “is that more businesses will be comfortable with making vaccinations mandatory for their employees,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in emailed commentary.
“However, to the extent that the general public becomes more comfortable living with the virus — either because of increased vaccinations or natural immunity from recovered infections — the economy is likely to continue on its upward trajectory,” Zaccarelli said.
Investors also were warming to the idea that the Fed might wait until November or December to announce plans to roll back easy-money policies, as the Kansas City Fed’s annual Jackson Hole retreat commences on Thursday.
Powell’s highly anticipated address at the gathering — now online instead of in-person — is set for Friday.
Market participants earlier had been expecting Powell to discuss the progress toward reducing the rate of bond purchases, but not formally signal a timetable. Some strategists now think the central bank boss may not bring up tapering at all, as the delta variant of COVID-19 spreads. Activity in the options market last week had indicated that traders largely expected Powell’s Jackson Hole speech to be a nonevent.
Read: Investors look for Fed clues on tapering as Jackson Hole goes virtual because of delta variant
Tom Di Galoma, managing director of Seaport Global Holdings, said that “based on the recent [Federal Open Market Committee] minutes, we believe the Fed will not
announce a taper at Jackson Hole and will most likely announce
a taper in November or December.”
On Friday, Dallas Federal Reserve President Rob Kaplan said he may rethink his call for the Fed to quickly start to taper its $120 billion a month in bond purchases if it looks like the spread of the coronavirus delta variant is slowing economic growth.
The Fed’s shift to a virtual Jackson Hole event also might make Powell less likely to discuss removing some of the easy-money accommodations put in place in March 2020 during the worst of the pandemic’s market disruptions.
Powell’s position at the Fed seems to be in good standing. According to a Bloomberg News article, the chairman’s reappointment is supported by Treasury Secretary Janet Yellen, with President Joe Biden expected to make a decision around Labor Day.
“I think the bond market, in particular, but also the stock market, took some heart from that,” said Amundi’s Carey, adding that investors often favor “some continuity, rather uncertainty” in having a new Fed chair.
See: The real significance of Afghanistan to markets may be how it’s shaped Fed succession battle
In economic reports, IHS Markit’s flash U.S. composite index, which tracks the manufacturing and services sectors, fell to 55.4, marking an eight-month low. A reading above 50 indicates growth in the private sector.
The flash services index fell to a reading of 55.2 from 59.9, also marking its lowest since December, with economists on average expecting a reading of 59.7, while manufacturing was 61.2, a four-month low, compared with July’s all-time high reading of 63.4.
Separately, existing-home sales rose 2% to a seasonally adjusted, annual rate of 5.99 million in July, the National Association of Realtors said Monday. Compared with June 2020, home sales were up 1.5%.
Economists polled by MarketWatch had projected existing-home sales to come in at 5.83 million. The median sales price of an existing home was up 17.8% year-over-year at $359,900, but was below the record set the month prior.
—Steve Goldstein contributed reporting