Dow Jumps on Bets Low Rates to Persist

This post was originally published on this site – The Dow advanced Thursday, as investors bet that market-friendly policies from the Federal Reserve will remain in place for a prolonged period after Chairman Jerome Powell said the bank would allow inflation to run hot to support the economic recovery.    

The Dow Jones Industrial Average rose 0.89%, or  252 points. The S&P 500 rose 0.36%, while the Nasdaq Composite slipped 0.13%.

Powell unveiled the long-awaited update on the Fed’s framework, saying that it will take a flexible approach to targeting inflation, which the central bank still expects to be 2% over time.  When inflation is running below 2% for a period of time “appropriate monetary policy” will be taken.

“The bottom line here is that Mr. Powell and his colleagues have given themselves significantly more room to maintain zero rates and a swollen balance sheet over the next couple of years, as the economy recovers from the Covid shock,” Panetheon Macroeconomics said.  

Financials, mostly banks, led the move higher. They would get a lift from rising bond yields, which boosts the net interest income banks earn. The U.S. 10-year Treasury yield hit a more than two-month high.

Bank of America (NYSE:BAC), Goldman Sachs Group (NYSE:GS), Citigroup (NYSE:C) were up more than 1%, while JPMorgan Chase (NYSE:JPM) jumped 3%.

In consumer staples, Walmart Inc(NYSE:WMT) surged 6% as the company confirmed that it would partner with Microsoft to acquire social media company TikTok.

Microsoft (NASDAQ:MSFT) was up about 4%, but that did little to stop weakness in tech as the tech giant’s contemporaries like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOGL) were down more than 1%.

Google has come under further scrutiny as the government weighs bringing antitrust suit against the search-engine giant, with reports suggesting that lawmakers are investigating whether Google selling bundled products is stifling competition.

In healthcare, Abbott Laboratories (NYSE:ABT) surged 9% as President Donald Trump reportedly plans to unveil a $750 million deal to purchase 150 million Covid-19 tests from the company.

The news added to a wave of positive news about tests and potential vaccines at a time when the number of new cases appears to be slowing across the U.S.

Energy, however, had limited upside in the broader market as oil prices fell despite production cuts related to Hurricane Laura, which made landfall along the U.S. Gulf Coast on Thursday.