Overlooking the fears of inflation and rising interest rates, the stock market registered bullish momentum on the outlook of quick economic recovery. Fed Chairman Jerome Powell has said that it will take a long time for inflation to pick up.
On Wednesday, February 24, the Dow Jones Industrial Average registered a strong comeback with one of the strongest intraday reversals and a new record high. The US stock market decided to look past the fears of inflation and rising interest rates and instead stay bullish on the economic comeback.
After a 110-point drop during the early trading hours, the DJIA (INDEXDJX: .DJI) ended trading 1.35% up gaining 424 points. With this, the Dow Jones gave a record high closing of 31,961 levels. Stocks from the industrial, financial and energy sectors delivered a strong performance.
Stocks that Pushed Dow to Record Levels
Both Visa Inc (NYSE: V) and Goldman Sachs (NYSE: GS) stock jumped 3.5% during the trading session. Boeing Co (NYSE: BA) stock jumped over 8% while the Chevron (NYSE: CVX) stock jumped over 3.6% on Wednesday. In addition to Dow Jones, other indices also spiked high yesterday.
Both – S&P 500 (INDEXSP: .INX) and the Nasdaq Composite (INDEXNASDAQ: .IXIC) surged 1% each. The 10-year treasury yield shooting to 1.4% put severe pressure on the technology stocks. The higher bond yield rates have been concerning the growth companies the most who have been benefitting from the low-interest-rate environment.
Amazon.com Inc (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), and Facebook Inc (NASDAQ: FB) were all trading higher from their lowest levels although ultimately ending up in the red. In a note to clients, Christopher Metli, a quantitative and derivative strategist at Morgan Stanley wrote:
“Volatility along the way is to be expected, and higher rates will continue to drive more risk down into sectors and factors, but … dips in the equity market are meant to be bought in this environment”.
Federal Reserve Downplays Inflation Threats
Jerome Powell, the Federal Reserve chairman downplayed the threats of inflation. He added that it could take three years consistently to reach the central bank’s targets. However, in his testimony to testimony in front of the House of Representatives Financial Services Committee, Powell stated that once the economy opens completely and the demand spurts, inflation could be volatile.
Interestingly, Powell added that if the interest rate spikes majorly, then the central bank has tools to control it. The fears of inflation are majorly behind Bitcoin (BTC) attracting large institutional money. Big players see Bitcoin as an inflation hedge. Ed Clissold, chief U.S. strategist at Ned David Research, said in a note:
“Higher interest rates could moderate broad market gains, multiples should compress, and the last phase of early cycle themes could lead to Value exerting much-awaited leadership over Growth”.
During the sharp correction of the Tesla Inc (NASDAQ: TSLA) stock on Tuesday, Ark Investment’s Cathie Wood made a huge purchase. The asset management giant purchased $120 million worth of TSLA shares for its flagship Ark Innovation ETF.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.