Stocks of the major averages rose on Friday and closed the week in the green as Fed Chairman Jerome Powell prepared the markets for the central bank to pull back on some of its monetary stimulus. Powell is likely to start tapering its $120 billion in monthly bond purchases this year.
The Dow added 242.68 points, or 0.6%, to 35,455.80. The S&P 500 gained 0.8% to hit a new high of 4,509.37. The Nasdaq Composite rose 1.2%, also hitting a new record to close at 15,129.50.
The three major indexes closed the week in the green.
The Dow finished up 0.9%, the S&P 500 gained 1.5%, and the Nasdaq Composite added 2.8%.
The 10-year Treasury yield, which ran up this week into the Powell speech, also eased slightly after the soothing words from Fed Chairman. Markets seem relieved the Fed isn’t planning to raise rates soon as Powell indicated that hiking interest rates were not on his immediate to-do list.
According to Jerome Powell, the economy has recovered significantly that “it could be appropriate” to start slowing down some of the Fed’s pandemic-era stimulus measures.
Also Read: S&P 500 and Nasdaq Broke 5-Day Win Streaks Ahead of Fed’s Monetary Stimulus Plan
The backstory
Since July last year, the Federal Reserve has been buying $120 billion worth of bonds and mortgage-backed securities each month to keep markets working.
Fast forward to 2021, investors are now desperate to hear when the Fed will begin scaling back those asset purchases, a process known as “tapering.” Dialing back stimulus programs could potentially spark a “taper tantrum” in financial markets just like the one that rocked markets temporarily at the end of 2013.
When exactly will the Fed start tapering?
While Powell said the Fed will start this year, it’s no doubt, very vague. To make it less vague, statements from other central bank officials suggest a tapering announcement could come as soon as the Fed’s September 21-22 meeting.
However, after Powell’s speech, Goldman Sachs predicted that the Fed would give advance notice next month and then formally announce tapering in November.
How’re other stocks faring?
Energy stocks led the S&P 500 after being among the hardest hit on Thursday. Occidental Petroleum rose 6.9%, Cimarex Energy grew 6.5%, and APA Corp climbed 5.9%.
Auto companies got a boost as Ford and General Motors (GM) rose 3% and 2%, respectively.
Travel stocks were also up with the Invesco Dynamic Leisure and Entertainment ETF gaining 2.27%.
Workday’s shares surged 9.1% after reporting strong current earnings and subscription revenue that jumped 23% from last year. Peloton shares slid 8.5% a day after reporting sour earnings.
The three major averages are on track to end August in the green. This month, the Dow is 1.4% higher, the S&P 500 is up 2.6%, and the Nasdaq Composite also added 3.1% this month.
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