Bull Market Bounces Back to Record Highs, Fed Chair Powell Pleases Market
The Dow Jones Industrial Average underperformed on a relative basis with a 1.0% gain, while the Russell 2000 raced ahead with a 5.1% gain amid a strong bounce in energy stocks.
From a sector perspective, the S&P 500 energy sector rebounded 7.3% (cutting its monthly decline to 1.0%) while five other sectors rose more than 2.0%. The defensive-oriented utilities (-2.1%), consumer staples (-1.4%), health care (-1.2%), and real estate (-0.3%) sectors closed lower, loosely reflecting a greater tolerance for riskier stocks.
Prior to Fed Chair Powell's speech, the market was in-tune with a buy-the-dip mindset amid various developments:
Interestingly, despite all the good news, the S&P 500 was only up 0.6% entering Friday. Part of that was because of the geopolitical uncertainty in Afghanistan, hawkish-sounding Fed commentary about wanting to taper sooner rather than later, and some hesitancy in front of Fed Chair Powell's speech.
The hawkish commentary continued Friday morning, but Fed Chair Powell struck a diplomatic tone that appeased the market. Briefly, Mr. Powell said "substantial further progress" has been met on inflation and that "clear progress" has been made on employment, implying it's not yet time for the Fed to start tapering asset purchases because the labor market still has room for improvement.
While the Fed chair acknowledged that tapering should probably start before the year ends, he reminded market participants that even when the central bank ends purchases, financial conditions will still be accommodative and that the criteria for interest-rate hikes will be based on a more careful assessment of the economy.
Treasury yields lost some rebound momentum following the comments. The 10-yr yield settled five basis points higher at 1.31% after hitting 1.37% earlier in the week. The U.S. Dollar Index fell 0.9% to 92.68.
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2021-126022 (Exp. 11/21)