- Wall Street’s main indexes opened in positive territory on Thursday.
- January PCE inflation data came in line with market expectations.
- Risk-sensitive technology shares post strong gains in early trade.
The S&P 500 (SPX) rises 0.48% at 5,093, the Dow Jones Industrial Average (DJIA) gains 0.22% at 39,034.30 and the Nasdaq Composite (IXIC) is up 0.85% at 16,083.21 after the opening bell on Thursday.
Stock market news
The Communication Services Sector and the Materials Sector both gain around 1% as the best-performing major S&P sectors in the early trade. The Health Care Sector is the only major sector in negative territory, losing 0.2% on the day.
Hormel Foods Corp. (HRL) is the biggest gainer after the opening bell, rising more than 16% at $35.83. Bath & Body Works Inc. (BBWI) shares underperform, down 5.5% at $45.65.
Assessing the latest developments in financial markets, “S&P 500 (-0.17%) still experiencing little movement since Nvidia’s earnings last week. The latest decline means the index is still on track for a weekly loss, and there were larger falls for the NASDAQ (-0.55%) and the Magnificent 7 (-0.58%),” said Jim Reid, global head of economics and thematic research at Deutsche Bank, and continued:
“Meanwhile in Europe, the story was also one of losses yesterday, with the STOXX 600 down -0.35%. That said, the DAX (+0.25%) continued to outperform, posting a 6th consecutive advance and closing at a fresh all-time high.”
Nasdaq FAQs
The Nasdaq is a stock exchange based in the US that started out life as an electronic stock quotation machine. At first, the Nasdaq only provided quotations for over-the-counter (OTC) stocks but later it became an exchange too. By 1991, the Nasdaq had grown to account for 46% of the entire US securities’ market. In 1998, it became the first stock exchange in the US to provide online trading. The Nasdaq also produces several indices, the most comprehensive of which is the Nasdaq Composite representing all 2,500-plus stocks on the Nasdaq, and the Nasdaq 100.
The Nasdaq 100 is a large-cap index made up of 100 non-financial companies from the Nasdaq stock exchange. Although it only includes a fraction of the thousands of stocks in the Nasdaq, it accounts for over 90% of the movement. The influence of each company on the index is market-cap weighted. The Nasdaq 100 includes companies with a significant focus on technology although it also encompasses companies from other industries and from outside the US. The average annual return of the Nasdaq 100 has been 17.23% since 1986.
There are a number of ways to trade the Nasdaq 100. Most retail brokers and spread betting platforms offer bets using Contracts for Difference (CFD). For longer-term investors, Exchange-Traded Funds (ETFs) trade like shares that mimic the movement of the index without the investor needing to buy all 100 constituent companies. An example ETF is the Invesco QQQ Trust (QQQ). Nasdaq 100 futures contracts allow traders to speculate on the future direction of the index. Options provide the right, but not the obligation, to buy or sell the Nasdaq 100 at a specific price (strike price) in the future.
Many different factors drive the Nasdaq 100 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the Nasdaq 100 as it affects the cost of credit, on which many corporations are heavily reliant. As such the level of inflation can be a major driver too as well as other metrics which impact on the decisions of the Fed.
Risk mood improves after PCE inflation data
Inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, declined to 2.4% on a yearly basis in January, the US Bureau of Economic Analysis (BEA) reported on Thursday. This reading followed the 2.6% increase recorded in December and came in line with the market expectation. On a monthly basis, the PCE Price Index rose 0.3% as forecast. The Core PCE Price Index, which excludes volatile food and energy prices, rose 2.8% on a yearly basis, matching analysts’ estimate.
Breaking: US Core PCE inflation edges lower to 2.8% as expected.
Reflecting the improving risk mood after PCE inflation data, the CBOE Volatility Index (VIX), Wall Street’s fear gauge, is down more than 3% on the day.
The BEA downwardly revised the annualized Gross Domestic Product (GDP) growth of the US in the fourth quarter to 3.2% from 3.3% in the initial estimate.
The US Census Bureau reported on Tuesday that Durable Goods Orders declined by 6.1%, or $18 billion, to $276.7 billion in January. This reading followed the 0.3% decrease recorded in December and came in worse than the market expectation for a contraction of 4.5%.
New York Fed President John Williams said late Wednesday that the inflation outlook has improved and that his baseline scenario was for three rate cuts in 2024.
Fed on course to begin lowering rates at the June FOMC meeting – ABN Amro.
According to the CME FedWatch Tool, markets are nearly fully pricing in a no change in the Fed policy rate in March and see an 80% probability of another pause in May.
The Cooper Companies Inc. (COO), Autodesk Inc. (ADSK) and Veeva Systems Inc. (VEEV) will be among top companies that will release quarterly earnings after the closing bell on Thursday.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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