Wall Street Stocks Wobble After Powell Testimony Before Congress

15 Jul 2021 · 3rd Party Analysis

Wall Street Stocks Wobble After Powell Testimony Before Congress

WRITTEN BY ThorFX

In Summary

  • Stocks trade mixed with the Dow and the S&P500 higher, Nasdaq slips
  • Fed Chair Powell reiterates the central bank will remain committed to its monetary policy

The US equity market on Wednesday struggled for direction as Federal Reserve Chairman was questioned on the economy by members of Congress. Market participants were betting that the Fed Chair would lay out Fed’s next steps toward the overheating market environment underpinned by higher inflation. Rather, Mr. Powell played down inflation fears and suggested the Fed viewed higher prices as a temporary phenomenon.

The S&P500 and the Dow Jones Industrial Average moved up as investors rotated to cyclicals, or so-called “value stocks”. The broad index added 5.09 points, or 0.12% to finish the session at 4,374.30. The S&P500 climbed to a new all-time high during the session but buyers couldn’t sustain the upside momentum. The 30-stock Dow Jones Industrial Average advanced 44.44 points, or 0.13%, to 34,933.23.

The Nasdaq Composite slipped 32.70 points, or 0.22%, to a close of 14,644.95. The tech-focused index marked its second straight day in decline.

In individual stock action, BlackRock’s second-quarter profit rose 14% as new money swell its assets under management to a record $9.49tn. The world’s largest money manager marked a 30% increase in assets year on year. Despite the rise in profit, the stock fell $27.75, or 3.06%, to $880.32.

Bank of America Sees Downsized Profit

Bank of America’s profit more than doubled, while its revenue took a hit in the second quarter of 2021. Its revenue arrived at $21.47bn, down 4% from $22.33bn a year ago. Still, the nation’s second-biggest bank by assets posted earnings of $9.22bn, up from $3.53bn for the same quarter in the year before. Shares of Bank of America slipped 2.51% on Wednesday.

Citigroup was another large bank reporting earnings on Wednesday. The US lender posted a profit of $6.19bn, or $2.85 a share, beating previous results of $1.06bn, or $0.38 a share for the same quarter a year ago. The stock ended down 0.29%.

The fluctuations in the major indexes were a result of investors trying to figure out how would inflation affect a market heavily boosted by constant monetary and fiscal stimulus. The Fed’s response to the surge in consumer prices would be directly tied to the movements in stocks. So far, the US central bank has been plowing as much as $120bn a month in bond purchases, a historically high amount.

For comparison, after the financial crisis of 2008 when the housing market collapsed, Ben Bernanke, then-Fed Chair, was buying bonds at a rate of $85bn a month.

“We continue to expect that it will be appropriate to maintain the current target range for the federal funds rate until labor market conditions have reached levels consistent with the Committee’s assessment of maximum employment,” Mr. Powell said on Wednesday before members of Congress.

“We are continuing to increase our holdings of Treasury securities and agency mortgage‑backed securities at least at their current pace until substantial further progress has been made toward our maximum-employment and price-stability goals,” the Fed chief also mentioned.

In the overseas market, European bourses floated little changed on Wednesday as traders and investors decreased their risk appetite prompted by heightened Delta variant worries and renewed inflation pressures. UK’s inflation print yesterday arrived higher than expected, at 2.5%, above the Bank of England’s target. On Friday, market participants will be looking to find out the euro zone’s rate of inflation for June.

In cryptocurrency, bitcoin, ether, and other digital assets traded moderately to the downside on Wednesday. Bitcoin stayed in the $32,000 to $33,000 range, while ether was changing hands above $1,900 per token.

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