Stocks tacked on to record highs Thursday after President Joe Biden signed the sixth coronavirus aid package into law–a promising developing that’s sure to kick the economic recovery into overdrive, just hours after an uplifting unemployment report and better-than-expected earnings for recently embattled companies.
The Dow Jones industrial average and S&P 500 both closed at record highs, climbing 188 points, or 0.6%, and 1%, respectively, while the tech-heavy Nasdaq surged 2%, landing about 5% below a February high.
Technology stocks continue to rebound: Dating app Bumble jumped 11% after its first earnings report, Tesla 5% and giants Apple, Facebook and Amazon all roughly 2%.
Heading up losses in the S&P, shares of software giant Oracle fell 6.5% after CEO Safra Catz delivered softer-than-expected earnings guidance for the fourth quarter in a Wednesday evening conference call; the firm posted quarterly revenue of $10.1 billion, falling in line with average analyst expectations.
Meme stock AMC, meanwhile, soared 4% after the theater chain reported quarterly results that were better than analysts feared, including revenue that fell 89% year over year–instead of an expected 90% drop–and a loss per share of $3.15, about 10% lower than expectations.
On the jobs front, weekly unemployment data showed another 712,000 Americans filed new claims for jobless benefits last week, down about 5% from the prior week but still incredibly high by historical standards.
Global stocks, meanwhile, were fairly tepid Thursday: the United Kingdom’s FTSE 100 remained virtually flat, while France’s CAC 40 ticked up 0.7%.
KEY BACKGROUND
Stocks started to pare back recent losses this week after the Senate passed President Joe Biden’s $1.9 trillion stimulus plan. The move was particularly helpful for technology stocks, which have floundered in recent weeks over concerns that rising Treasury yields could sway investors from risky equities.
TANGENT
Cailin Birch, a global economist at The Economist Intelligence, said in a note Thursday that the mild drop in weekly unemployment claims will likely boost markets, but emphasized that the U.S. labor market is still far from a full recovery. “The real unemployment rate, accounting for discouraged workers who have stopped seeking employment, is closer to 10%, rather than the official rate of 6.2%.”
SURPRISING FACT
“Given that the most recent reading of the personal savings rate is a healthy 20.5%, our expectation is that a portion of the stimulus money makes its way into equities,” Cliff Hodge, a chief investment officer at North Carolina-based Cornerstone Wealth said Wednesday, citing a recent Deutsche Bank survey finding that respondents plan to plow nearly 40% of their stimulus money into the stock market. “The last time around, flows went into more speculative areas of the market, including SPACs, Reddit stocks and high-growth momentum, so it wouldn’t surprise us to see something similar.”
Buoyed by the Wednesday afternoon passage of President Joe Biden’s $1.9 trillion stimulus package, the broader market continues to bounce back with a vengeance, but experts are warning lofty government spending could trigger heightened inflation this summer once the economic recovery kicks into overdrive.
KEY FACTS
The Dow Jones industrial average closed at a record Wednesday, jumping 464 points, or 1.5%, while the S&P 500 climbed 0.6%, and the tech-heavy Nasdaq stayed virtually flat after surging 3.7% Tuesday–its best day in four months.
The Dow rallied Wednesday afternoon after the House of Representatives passed President Biden’s sweeping American Rescue Plan in a 220-211 vote, sending the fiscal relief package to Biden’s desk for signature on Friday.
Yields on the 10-year Treasury, which have driven much of the market's recent volatility, continued to unwind, falling nearly 5 basis points Wednesday morning and tempering concerns that investors may turn to the risk-free asset class after surging 50 basis points in one month.
The consumer price index, the U.S. benchmark for inflation, rose 0.4% in February on a month-to-month basis and 1.7% year over year, falling in line with economist expectations and marking "a relief" for investors concerned over rapid price spikes during the impending economic recovery, says Vital Knowledge Media Founder Adam Crisafulli.
Global markets, meanwhile, were mixed, with the United Kingdom's FTSE 100 virtually flat, while Germany's DAX Index ticks up 0.7% and France's CAC 40 climbs 0.9%.
WHAT TO WATCH FOR
More stimulus. "Democrats are pivoting to their infrastructure plan, which reports suggest could be worth up to $4 trillion over 10 years, but this will have a much harder time getting through Congress as resistance builds to deficit-busting bills," Crisafulli said Wednesday.
CRUCIAL QUOTE
"The inflation reading is certainly a relief–and follows a placid Treasury auction on Tuesday–but the inflation risks remain present, and it’s still likely readings will firm over the coming months," Crisafulli added, noting that the Federal Reserve believes inflation won't last beyond the summer. He's also not bullish that the tech rally Tuesday will extend much longer: "Despite this CPI number, we still think the growth surge from Tuesday should be faded."
TANGENT
According to the Wednesday CPI report, prices for recreation, shelter, medical care and car insurance increased in February, while prices for airline tickets, apparel, used cars and trucks all declined.
CHIEF CRITIC
"The only reason why the CPI isn't higher right now is because of the way it is calculated," says Nancy Davis, founder of Greenwich, Conn.-based Quadratic Capital Management. "A large part of the calculation is shelter... Right now, some housing markets are booming, but some aren't and that is keeping the CPI down. There are certainly pockets of inflation in other parts of the economy, most notably in food and gasoline prices." Gasoline prices jumped 6.4% in February. Food prices ticked up 0.2%, but they're up 3.6% in the past year.