By Joy Wiltermuth and Mark DeCambre
The S&P 500 index and Dow industrials end higher Wednesday, knocking on the door of all-time records, as investors parsed the Federal Reserve’s latest Beige Book showing the U.S. economy is growing at a modest to moderate pace, but remains under pressure from inflation and labor shortages.
Upbeat corporate earnings also continued to fuel bullishness in stocks, with electric-vehicle maker Tesla Inc. /zigman2/quotes/203558040/composite TSLA +4.24% reporting after the market closed.
How did stock indexes trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.40% rose 152.03 points, or 0.4%, ending at 35,609.34, after earlier trading above it 35,625.40 Aug. 16 closing high and carving out a fresh intraday record at 35,669.69 in the process.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +2.07% added 16.56 points, or 0.4%, finishing at 4,536.19, after earlier topping its Sept. 2 closing high at 4,536.95.
The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +3.03% fell 7.41 points, or 0.1%, ending at 15,121.68 and snapping a 5-day win streak.
On Tuesday, the Dow rose 199 points, or 0.56%, to 35457, the S&P 500 increased 33 points, or 0.74%, to 4520, and the Nasdaq Composite gained 107 points, or 0.71%, to 15129.
What drove the market?
U.S. stock benchmarks nearly clinched new record closes, after the Dow touched an intraday record and the S&P 500 ended a fraction below its closing record set almost seven weeks ago.
The yield-sensitive Nasdaq Composite gave up earlier gains though, after attempting to advance for a sixth straight gain, pressured lower by the benchmark 10-year Treasury yield climbing above 1.6%, even as corporate earnings for the third quarter continue to delight investors.
“Obviously, this is an earnings rally and the rally is continuing,” said Peter Cardillo, chief market economist at Spartan Capital, in a phone interview. “By next week, we will be able to grade the season, which I think will probably be an ‘A’ because earnings are coming in better than expected.”
Good third quarter corporate earnings are helping investors overcome some doubts about the impact of the coronavirus delta variant, supply chain disruptions and the Federal Reserve’s likely move to start withdrawing some of its easy-money policies.
Fundstrat Global Advisors lifted its end-year S&P 500 forecast to 4,800 from 4,700. In a note to clients, strategists led by founder Tom Lee said they see a “strong risk-on environment” as under way, helped by a typically strong year-end seasonal pattern that follows October.
Investors were cooling slightly on technology stocks, but buying cyclical stocks seen benefitting from the ongoing economic recovery, with a rotation under way into healthcare /zigman2/quotes/205918244/composite XLV +1.29% , consumer staples /zigman2/quotes/200697959/composite XLP +0.22% , utilities /zigman2/quotes/206645117/composite XLU +0.75% and real estate /zigman2/quotes/207325179/composite XLRE +1.77% .
However, inflation concerns remain an issue. Fed governor Randal Quarles said he was beginning to focus more of his attention on inflation and that there are “significant upside risks” to the widely-shared view that price pressures will decline sharply next year, in a Wednesday speech to the 2021 Milken Institute Global Conference.
Quarles also said he will support a decision at the Fed’s meeting in two weeks to begin tapering the central bank’s $120 billion in monthly bond purchases of Treasurys and agency mortgage-backed securities. Fed Reserve Gov. Christopher Waller on Tuesday said the central bank should begin tapering its monthly purchases starting next month.
Giorgio Caputo, senior investment analyst at JO Hambro Capital Management, said that while the economy appears to be moving past its earlier “air pocket” tied to global coronavirus cases and severe supply-chain bottlenecks, that tapering of bond purchases by the Fed will be important.