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US Close: Another record high, Yields rally ahead of Jackson Hole, Delta and vaccines, 5-year auction, USD turns negative

The S&P 500 index made a fresh record high today, topping 4,500, the end of year target for many analysts. Today’s rally stems from positive developments in the fight against, COVID, a decrease in durable goods orders, and optimism that the economy will see a few trillion dollars in additional stimulus at some point over the next month or two.

The US stock market remains excessively bullish, but still ripe for its first 5% percent pullback in almost a year as a potential peak in stimulus is here.  Fed Chair Powell’s Jackson Hole speech will likely emphasize the economic recovery is well past the crisis and that they will shortly announce they are ready to taper asset purchases.  Powell still has a fresh memory of his communication mistake when he said the pace of balance sheet reduction was on autopilot in December 2018.  The bond market didn’t blink when the US stopped its corporate bond buying program, so risk appetite could remain if Powell gives himself many outs.  Powell could list out several conditions that could trigger a return to an accommodative stance.  With the Biden administration coming very close to delivering another $4 trillion in stimulus, the Fed can confidently start normalizing monetary policy.

The theme over the next several weeks will be Corporate America’s insistence on getting their employees vaccinated.  Delta Air Lines announced any employee who is unvaccinated will pay $200 per month to stay on the company’s health care plan beginning on November 1st.  CEO Bastian said that the average hospital stay for COVID-19 costs the carrier about $50,000 per person.  Many more companies may follow Delta’s lead and this could be just the incentive needed to get the country closer to herd immunity.

The dollar gave up earlier gains as risk appetite runs wild as US stocks continue to rise further into uncharted territory.  Treasury yields rallied early as many fixed income traders begin to price in further bearishness in Treasuries.  A strong five-year auction shows bidding remains solid and that investors are not worried about Fed Chair Powell turning hawkish on Friday.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya [4]

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya