#Market Snapshot: Dow rallies and S&P 500 and Nasdaq jump to intraday records, as Powell supports taper but doesn’t signal timing

What’s driving market?

Powell, in the closely followed speech on Friday, said he advocated tapering the Fed’s purchases of $80 billion of Treasurys and $40 billion of mortgage-backed securities each month but was vague about the timetable for such an effort.

“Powell is a dove and wants more time to assess the data on employment…the reasons for using this speech to signal the taper have reduced since the July FOMC,” wrote Neil Wilson, chief market analyst at Markets.com, in a emailed research note.

The Fed chair said the U.S. central bank “will be carefully assessing incoming data and the evolving risks,” perhaps offering himself more wiggle room before the Fed’s Sept. 21-22 meeting to digest further evidence of the health of the economy, including a coming jobs reports for August.

Wilson said that while Powell “stressed that while the ‘substantial further progress’ test has been met for inflation, it has not yet for the employment mandate.”

“Though he stressed that clearly there has also been clear progress toward maximum employment,” the Markets.com analyst wrote.   

The tapering question is a significant one for market participants because the monthly asset purchases have added critical liquidity to markets since the economy plunged into recession last year during the coronavirus pandemic.

Powell’s comments followed those from Fed officials who had joined the chorus of voices in favor of tapering soon. In an interview with CNBC, Philadelphia Fed President Patrick Harker said he didn’t think asset purchases was “doing a whole lot right now.” Cleveland Federal Reserve Bank President Loretta Mester, also speaking to the network, said she would be comfortable with the central bank laying out its taper plans in September, and winding down purchases by mid-2022.

A third policy maker, Atlanta Fed President Raphael Bostic, told CNBC that the U.S. economy is “very close” to the substantial progress benchmark needed to start tapering its asset purchases, but “a lot depends on what happens in the next couple of months.”

Powell appeared to walk a fine line between pointing to tapering and divorcing it from the idea of ultimately normalizing interest rates and assuaging market bulls who have been fearful that an easy-money regime would be at an end too soon.

Still, some fear that there are dangers inherent in Powell’s positioning.

Jeremy Lawson, chief economist at Aberdeen Standard Investments, said that Powell’s speech “was yet more proof that transparency does not mean clarity. And the void that the Fed’s ambiguity leaves comes at a price.”

“There are good reasons why the Fed would want some ambiguity…But if the Fed isn’t even being clear about what it is targeting and how it will behave under different circumstances then they just create layers of uncertainty over other layers of uncertainty,” Lawson wrote, in emailed remarks.

“That forces investors into a cottage industry guessing game about what path they might take, leads to more rather than less volatility and wastes enormous amounts of resources, the economist wrote.

Powell’s remarks come after a reading of the U.S. rate of inflation, based on the personal consumption deflator, rose again in July and drove the increase over the past year to a 30-year high, pointing to fresh strains on businesses and consumers as the economy recovers from the pandemic.

The so-called PCE price index, or personal-consumption expenditures, the Fed’s preferred measure of inflation, climbed 0.4% in July, government figures show. It was the fifth big increase in a row and the 12-month increase in PCE to 4.2% from 4%, was the highest since 1991. However, the core rate, excluding food and energy prices, over the past 12 months was unchanged at 3.6%, keeping it at a 30-year high.

In other data, personal incomes climbed 1.1% in July, while spending increased 0.3% in July; and the U.S. international trade deficit in goods dropped 6.2% in July to $86.4 billion.

Meanwhile, the University of Michigan’s consumer-sentiment index slipped to 70.3, versus the 70.7 expected and below the 81.2 earlier reading, indicating waning consumer optimism amid the spread of the coronavirus delta variant.

Which companies are in focus?

• Peloton Interactive Inc. PTON shares were tumbling 7.5% on Friday after the exercise-equipment company said it has been subpoenaed by the Justice Department and U.S. Department of Homeland Security for documents relating to its reporting of injuries caused by its products.

• Support.com’s shares
  SPRT,
  +118.18%
  were surging over 70%, extending its gains after soaring on Thursday. Support.com provides customer and technical support. 

• Quanterix Corp. QTRX said that while it was previously engaged by Cassava Sciences Inc. SAVA to perform sample testing, the digitized biomarker analysis company said it, or its employees, “did not interpret the test results or prepare the data charts” presented by Cassava to the Alzheimer’s Association International Conference (AAIC) in July, or otherwise. Quanterix’s stock was up nearly 8% and those for Cassava were down 22%.

• EngageSmart Inc. on Friday filed its initial public offering documents for the Braintree, Mass.-based payment software company to trade on the New York Stock Exchange under the symbol “ESMT.”

How are other assets trading?

• The 10-year Treasury note yield
  TMUBMUSD10Y,
  1.321%
  was receding at around 1.32%, following Powell’s comments.

• The dollar was edging higher, as gauged by the ICE U.S. Dollar Index
  DXY,
  -0.32%,
  a measure of the buck against a half-dozen rivals.

• In Asia, Tokyo’s Nikkei 225
  NIK,
  -0.36%
  declined 0.36% while the Hong Kong Hang Seng Index
  HSI,
  -0.03%
  closed 0.03% lower and the Shanghai Composite
  SHCOMP,
  +0.59%
  rose 0.59%

• In Europe stocks hovered higher, with London’s FTSE 100
  UKX,
  +0.42%
  up less than 0.1%, and the pan-European Stoxx 600
  SXXP,
  +0.41%
  also rising by about 0.1%. France’s CAC 40
  PX1,
  +0.16%
  slipped less than 0.1% while Frankfurt’s DAX
  DAX,
  +0.31%
  traded less than 0.1% higher.