Stock futures held onto gains after equities’ best day since July, with the major indexes looking to shake off earlier volatility and end the week on a high note. The S&P 500 paced toward a weekly gain of 0.4% as of Thursday’s close.
Equity investors have managed to look past concerns over China Evergrande’s debt crisis, uncertainty over monetary and fiscal policy and ongoing debates in Washington over the debt ceiling to trade higher.
Cyclical stocks including the industrials, energy and financials sectors outperformed this week after the Federal Reserve signaled the economic recovery “has made progress” toward the central bank’s goals on employment and inflation. The Fed has also now primed markets for its asset-purchase tapering to begin as soon as November against the improving economic backdrop.
“It’s not a surprise to me that the Fed is moving forward with the tapering,” Jeff Schulze, ClearBridge chief investment strategist, told Yahoo Finance Live on Thursday. “If you think about the three month moving average … we’re at about 740,000 jobs created per month. That is stronger than anything we’ve ever seen pre-COVID.”
“For the first time in a long time, markets are cheering on a marginally more hawkish Fed,” he added. “It’s becoming clear to participants that we are moving past peak Delta, you’re going to see a very strong re-acceleration over the next couple of quarters, and that’s going to go a long way to keep earnings moving forward.”
Treasury yields jumped across the curve on Thursday, with the benchmark 10-year yield topping 1.41% to reach its highest level since July. The move higher in yields, however, did not appear to spook equity investors, nor did it weigh heavily on some of the technology and growth stocks that had taken a hit as rates rose earlier this year. The Nasdaq closed higher by more than 1%
According to Mark Haefele, UBS Global Wealth Management’s chief investment officer, given the still-low Treasury yields seen during the pandemic, “Only a rise in real yields of more than 50 [basis points] over three months would likely weigh on equity returns, particularly in emerging markets.”
Other pundits also pointed to the Fed’s more constructive view on the recovery as a main factor helping send stocks on a late-week rally.
Video: Morning Brief: S&P 500 targets are rising left and right (Yahoo! Finance)
“A hawkish Fed was surprisingly welcomed by equity markets as it was seen as a confirmation of continued strength and ‘substantial progress’ made by the economy in recovering from the COVID shock,” Anu Gaggar, global investment strategist for Commonwealth Financial Network, wrote in an email.
“While we are far from the end of [quantitative easing] and near-zero rates, the tide seems to be beginning to change,” Gaggar added. “So far, the market had welcomed bad news as good news, but a market reacting to signs of an economy able to stand on its own without the monetary policy crutches is a refreshing change.”
6:27 p.m. ET Thursday: Stock futures hold onto gains
Here were the main moves in markets as of Thursday evening:
S&P 500 futures (ES=F): +3.25 points (+0.07%), to 4,441.25
Dow futures (YM=F): +15 points (+0.04%), to 34,659.00
Nasdaq futures (NQ=F): +2.5 points (+0.02%) to 15,306.00
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter