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Market Snapshot: Dow erases 2020 loss as stocks trade slightly higher

Market Snapshot

Americans increased spending in July for the third month in a row, but at a much slower pace


Stocks were up modestly Friday, with the Dow Jones Industrial Average erasing its 2020 losses and the S&P 500 index on track for another record close, as investors sifted through data on U.S. consumer spending and confidence a day after the Federal Reserve announced a policy shift that would allow employment and inflation run hotter than in the past.

What are major benchmarks doing?

The Dow
was up 52.49 points, or 0.2%, at 28,544.76, while the S&P 500
rose 6.21 points, or 0.2%. to 3,490.76. The Nasdaq Composite
advanced 60.45 points, or 0.5%, to trade at 11,685.79. 

On Thursday, the Dow rose 160.35 points, or 0.6%, to close at 28,492.27. The S&P 500 ended with a gain of 5.82 points, or 0.2%, at 3,484.55, a record close. The Nasdaq , which closed at a record on Wednesday, fell 39.72 points, or 0.3%, to close at 11,625.34.

What’s driving the market?

Stocks put in a choppy performance Thursday after Federal Reserve Chairman Jerome Powell announced, in an appearance at the annual Jackson Hole monetary symposium, that the Fed was shifting to a policy of average inflation targeting which would effectively see policy makers end the practice of preemptively hiking interest rates to stave off inflation. Instead, the Fed would allow inflation to run above its 2% target to make up for periods when inflation runs below it — signaling that a long period of ultralow interest rates lies ahead.

Need to Know:The Fed might never hike rates again. Here are growth stocks for the long run, according to one strategist

“Markets haven’t got overexcited by the U.S. Federal Reserve’s new stance on letting inflation run higher, despite it implying that interest rates will stay lower for longer — normally something that would benefit equities. One could argue that the Fed following this path was already expected by the market, hence why stocks haven’t surged ahead,” said Russ Mould, investment director at AJ Bell.

Cleveland Federal Reserve President Loretta Mester, in a television interview Friday, said the economic recovery from the pandemic-induced recession “is likely to be a slow one.”

“There is more pain out there that we are going to have to support the economy through,” Mester said.

In Asia, Japanese shares fell sharply, leaving the Nikkei 225 Index
down 1.4% after Prime Minister Shinzo Abe said he would resign due to illness. Abe, whose term ends in September 2021, is expected to remain in office until a new party leader is elected and formally approved by parliament.

Data showed U.S. personal income rose 0.4% in July, while consumer spending was up 1.9%. Economists surveyed by MarketWatch expect had expected income to fall another 0.4% after a 1.1% drop in June. Spending was expected to show a 1.6% rise after a 5.6% increase in June.

Spending on durable goods is up 12.2%, while spending on services is down 9.3% for a net shortfall of 4.6% in total consumer demand, said Aneta Markowska, chief financial economist at Jefferies, adding that the variation in spending patterns explains “part of the disconnect between the stock market and the economy, since the former has much less exposure to the service sector than the latter.”

Read:Stop saying ‘stocks are not the economy’

The final reading of the University of Michigan’s August consumer sentiment index came in at 74.1 versus a preliminary reading of 72.8 and up from 72.5 in July.

Which companies are in focus?
What are other markets doing?

The Shanghai Composite
rose 1.6% and the Hong Kong’s Hang Seng Index
gained 0.6%. 

The Stoxx Europe 600
was off 0.6%, while U.K.’s FTSE 100 benchmark
declined 0.4%. 

The yield on the 10-year Treasury note
was down 2.9 basis points at 0.718%. Bond prices move inversely to yields.

Gold futures
were up 1.6% at $1,962.70 an ounce. U.S. oil futures
fell 0.7% to $42.76 a barrel.

The ICE U.S. Dollar Index
which tracks the currency versus a basket of six major rivals, slumped 0.6%.

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