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Dow Gets Boost From Banks as Yields Jump on Fed's Inflation Focus

Published 08/27/2020, 04:00 PM
Updated 08/27/2020, 04:13 PM
© Reuters.

© Reuters.

By Yasin Ebrahim

Investing.com – The Dow advanced Thursday as banks were boosted by a surge in Treasury yields after the Federal Reserve chairman laid out plans to aid the central bank its battle to strengthen inflation. 

The Dow Jones Industrial Average rose 0.57%, or 160 points. The S&P 500 added 0.17%, while the Nasdaq Composite slipped 0.34%.

Powell unveiled the long-awaited update on the Fed's framework, saying that the central bank will adopt an “average inflation” target that could allow inflation run above its 2% target. When inflation is running below 2% for a period of time, appropriate monetary policy will be taken. Under the proposed changes, the central bank also signaled a shift from its long-standing narrative that tight labor markets trigger a faster pace of inflation. "(E)mployment can run at or above real-time estimates of its maximum level without causing concern, unless accompanied by signs of unwanted increases in inflation," Powell added.  

"The bottom line here is that Mr. Powell and his colleagues have given themselves significantly more room to maintain zero rates and a swollen balance sheet over the next couple of years, as the economy recovers from the Covid shock," Pantheon Macroeconomics said.  

Financials, mostly banks, led the move higher in broader market. They would get a lift from rising bond yields, which boosts the net interest income banks earn. The U.S. 10-year Treasury yield hit a more than two-month high.

Bank of America (NYSE:BAC), Goldman Sachs Group (NYSE:GS) and Citigroup (NYSE:C) were up more than 1%, while JPMorgan Chase (NYSE:JPM) jumped more than 3%.

In consumer staples, Walmart (NYSE:WMT) surged 4.6% as the company confirmed that it would partner with Microsoft to acquire social media company TikTok.

Microsoft (NASDAQ:MSFT) was up about 2.5%, but that did little to stop weakness in tech as the company's contemporaries like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOGL) were down about 1%.

Google has come under scrutiny as the government weighs bringing an antitrust suit against the search-engine giant, with reports suggesting that lawmakers are investigating whether Google is selling bundled products is stifling competition.

In healthcare, Abbott Laboratories (NYSE:ABT) surged almost 8% as U.S. President Donald Trump reportedly plans to unveil a $750 million deal to purchase 150 million Covid-19 tests from the company.

The news added to a wave of positive news about tests and potential vaccines at a time when the number of new cases appears to be slowing across the U.S.

Energy had limited upside in the broader market as oil prices fell despite production cuts related to Hurricane Laura, which made landfall along the U.S. Gulf Coast on Thursday.

Latest comments

I will vote for anyone that can get a loan in America. That takes Trump out of the contest.
lol
Trump in prison! 2021
Trump’s stonk market. Overvalued businesses trading at all time highs on taxpayers money. The taxpayers are losing their jobs. Separation of wealth.
this is clear scam, money is transferred to the rich and corporations. middle class and poor are struggling for years to come. just like communist countries, inequality society is pretty real now.
Easy money
Neither Trump or Biden are mentally, or physically fit to hold the presidency. The land of opportunity is no longer. The wealthy run this country, and Trump has provided the largest transfer of wealth program in history. The American Dream is dead.
No. I’m an independant. I think I speak for a majority of the people. Did you have fun while Trump sent bailout money to churches & failing businesses? Socialism is fun! Trump is a socialist. Did you get your share of our money?
Burn a church down & build a condo developement. Affordable housing for taxpaying citizens, less child molesters.
You're so right!! I got an additional $4.60 in my weekly paycheck from trumps tax cuts. He's the man for me!
Soon it is all over for US economy, beware of the red chinese troops, soon on US soil too, sorry guys!
Inflation is coming to America, get ready for a strong dollar!
I don't understand why bond yields are rising.
He Makes America Poor Again with Great Bubble Bang~
When interest rates are 3.6-4, you get an A. When its 2.6-3.4, you get a B. When they’re 1.6-2.5 you get a C. .06-1.4 D. Below .6, an F. Trump gets an F-!
I understand.  You've been living on the space station the last 3 1/2 years.  The US job market under Obama and Trump has been night and day.
you must love negative interest rates like your messiah Trump. So much debt, you want responsible Americans to pay for your mistakes.
The largest transfer of wealth in American history. Thank a red hat for destroying the “American Dream”
@ Dan Hodel   Obummer never had a dream...He needed a red hat :)
as a retired civil engineer from a federal contractor at Macdill AFB, our subcontractors hired illegals that couldn’t get access to the base. Why is that? Why pay an American 18 an hour when you can get an illegal at 9? Maga! Transfer the wealth!
this man is about to turn US like Venezuela.
Yes, this man is just a Bubble Maker.
"The most progressive presidential candidate" no mind biden
market is topping out.. big correction very soon
Will break through 30 by year end.
BAC is looking real strong.
Not for awhile, they are willing to do whatever it takes to keep this economy going.
MAGA 2020
American empire.
At this point i think the market would get a boost from anything ranging from alien invasion to a sunny weather day in Florida.
Is it really real or not?
Inflation is the only way for the Fed to effectively reduce its balance sheet. It’s been their plan all along. The announcement isn’t anything new.
Apple loss truth public
$dpst
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