Dow struggles to hold gains as stock market parses Fed’s Beige Book

This article was originally published on this site

U.S. stock benchmarks were seeing muted trade Wednesday afternoon, as a report on business conditions across Federal Reserve districts indicated that growth was picking up in America in the recovery phase of the COVID pandemic.

However, the report pointed to shortages in labor that provide further evidence of inflation pressures percolating in the economy.

Investors appeared to be eagerly awaiting a Friday report on employment for May, which could be a more significant catalyst for markets.

How are stock benchmarks trading?
  • The Dow Jones Industrial Average DJIA, +0.07% was up 18 points, or 0.1%, to reach roughly 34,593, on track for a fifth straight advance.
  • The S&P 500 index SPX, +0.14% was trading less than a point higher at around 4,203.
  • The Nasdaq Composite Index COMP, +0.14% was down 20 points, or less than 0.1%, at about 13,716.

On Tuesday, the Dow rose 45.86 points, or 0.1%, to 34,575.31, its fourth day of gains. The S&P 500 ended down 2.07 points, or 0.1%, at 4,202.04, while the Nasdaq Composite slipped 12.26 points, or 0.1%, to 13,736.48.

What’s driving the market?

The Fed’s Beige Book, an account of business conditions in the central bank’s 12 districts, didn’t offer any major surprises but it did point to inflation pressures continuing to build as both input and selling prices climb.

The report indicated that manufacturing activity increased despite notable supply chain challenges, with some companies expressing difficulties locating low-wage hourly workers, which resulted in some businesses cutting operating hours.

The data didn’t provide any impetus to move the market in either direction, as Wall Street begins to weigh second quarter performance by American corporations.

“Amid the economy’s ebullient reopening, demand is rebounding more rapidly than supply, creating bottlenecks and price increases in many sectors,” wrote Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, in a research note.

“Our bottom-up analysis of goods and services pricing dynamics confirms that the current acceleration in inflation should peak in May and gradually cool later in the year. Still, our forthcoming June base forecast will show inflation remaining persistently above 2% through 2022,” the economist wrote.

Philadelphia Fed President Patrick Harker on Wednesday said that it was time to start thinking about discussing the time frame for scaling back the Fed’s $120 billion a month asset-purchase program, which has been viewed as an element of the central bank’s easy-money policies during the pandemic.

“I think it is appropriate for us to slowly, carefully move back on our purchases at the appropriate time,” Harker said during a virtual Women in Housing and Finance event. “When that is, that is something we need to start discussing.”

Stock markets, meanwhile, have been listless, with the exception of meme stocks, on Wednesday as new cases of COVID-19 decline with vaccine rollouts in the U.S. but last month’s Labor Department employment report implied that growth in employment may be stagnating.

The seven-day average for new cases in the U.S. has fallen 45% from two weeks ago, according to a New York Times tracker, and deaths have dropped 44%, with hospitalizations down 22%.

The number of Americans fully vaccinated increased to 135.9 million, or 40.9% of the total population, while the number of people who are at least 18 years old who have been fully vaccinated grew to 133.6 million, or 51.7% of the population, according to data from Johns Hopkins University.

Some analysts think U.S. stock market indexes are likely to remain in a narrow trading range until Friday’s May nonfarm payrolls report is released. April’s report was estimated to have added around 1 million jobs, but instead badly missed forecasts at 266,000 jobs and the rate of unemployment inched up to 6.1%.

Which companies are in focus?
  • Shares of Zoom Video Communications Inc. ZM, -0.19% fell 1.1% after the videoconferencing company raised its outlook for the year and topped Wall Street estimates for the quarter.
  • Shares of AMC Entertainment Holdings AMC, +95.22% were up nearly 95% after its CEO said the movie chain was looking to engage directly with its “sizable retail shareholder base” with a new communication initiative, offering free popcorn for new members.
  • Shares of Lands’ End IncLE were up nearly 8% Wednesday, after the casual clothing and accessories retailer swung to a surprise profit, with sales growing 48%, as the recovery in its Outfitters business is occurring at a faster-than-forecast pace.
  • Advance Auto Parts IncAAP reported fiscal a first-quarter adjusted profit that more than tripled and beat expectations, boosted by record sales growth amid strong demand from do-it-yourself and professional customers. Shares of the company were down 1%.
  • Shares of Donaldson Co. Inc. DCI were up 1.6% on Wednesday, after the filtration products company reported fiscal third-quarter profit and record sales that beat expectations, and raised its full-year outlook.
  • Online art seller Etsy ETSY says it’s buying London-based privately held fashion marketplace Depop for $1.625 billion. Shares were up around 7.5%.
How are other assets faring?
  • The yield on the 10-year Treasury note TMUBMUSD10Y, declined 2 basis points to 1.593%. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.1%.
  • Oil futures CL00 extended its recent rally to the highest level in more than two years a day after OPEC+ kept its output plans in place. West Texas Intermediate crude for July delivery finished with a gain of $1.11, or 1.6%, at $68.83 a barrel. Gold futures GC00 saw a gain of 0.3% with contracts for August delivery GCQ21, +0.31% settling at $1,909.60 an ounce.
  • In Europe, the pan-Continental Stoxx Europe 600 index SXXP closed 0.3% higher to add to its record climb, while London’s FTSE 100 UKX gained 0.4%.
  • In Asia, the Shanghai Composite SHCOMP lost 0.8%, while Hong Kong’s Hang Seng Index HSI declined 0.6% and Japan’s Nikkei 225 NIK rose 0.5%.