On Thursday, stocks continued to cut losses from this week’s sell off as investors rallied around central bank stimulus following the Federal Reserve’s decision to keep its pandemic policy unchanged for the time being , but big concerns about federal debt and funding could shake the markets in the coming weeks.
The Dow Jones Industrial Average jumped 507 points, or 1.5%, on Thursday, with JPMorgan, American Express and Salesforce climbing 3%, 4% and 7% respectively; the index is now down just 2.4% from an all-time high in August after plunging to 5%.
Meanwhile, the S&P 500 added 1.3% and the tech-rich Nasdaq 1.1%, similarly slashing losses from the start of the week.
Leading S&P earnings, shares of Darden Restaurants soared 6% after parent company Olive Garden reported better-than-expected profits of $ 253 million thanks to nearly 50% increase in restaurant sales , offering respite to investors concerned about stunted summer growth due to the delta variant of Covid-19.
U.S. equity futures began to climb early Thursday after China’s central bank announced it would inject about $ 17 billion (110 billion yuan) into the country’s economy to help keep the real estate giant from struggling Evergrande, the nation’s most indebted real estate developer, to default on debt this month – a possibility that sparked a global sale on Monday.
“The rally of relief continues,” wrote market analyst Adam Crisafulli, founder of Vital Knowledge Media, in an email Wednesday, referring to emboldened investor sentiment after the Federal Reserve decided on Wednesday to maintain its policy. monetary stimulus policy in place for now and said a “gradual” reduction would not begin until November at the earliest.
However, in another sign that the economy may be too turbulent to ease support just yet, new jobless claims have unexpectedly risen for a second week in a row this month, according to department data. Labor report published Thursday, with 351,000 more Americans filing for unemployment claims for the first time. in the week ending September 18.
“It’s now clear that Chinese authorities won’t allow a messy default, and that’s really all the world markets care about,” wrote fund manager Tom Essaye, chairman of Sevens Report Research, in a note. of Thursday, adding that the Fed’s announcement on Wednesday had helped allay concerns. the central bank would quickly shrink or reduce its monthly asset purchases by $ 120 billion.
At a policy meeting on Wednesday, Fed Chairman Jerome Powell acknowledged that inflation had exceeded expectations and said wider economic progress, especially in the area of jobs, could “soon “justify a policy change, but he doubled the Fed’s asset purchases, saying they” help foster smooth market functioning and accommodating financial conditions. The stock market has started to recover from its crash induced by the pandemic last year on the day Powell pledged to use “the central bank’s full suite of tools to support the US economy” until “further substantial progress” is made towards a full economic recovery, but all eyes are now on the end of the stimulus. On Wednesday, Powell said the Fed could end its asset purchases by the middle of next year, suggesting a cut to p roughly $ 15 billion a month, an amount that Essaye says shouldn’t scare off investors.
Since Evergrande’s debt problems triggered large stock market declines, fears have largely abated that the collapse of the company could cause systemic unrest. However, Essaye and Crisafulli both warn that the problems are not over yet. Evergrande announced Thursday that it will not miss an interest payment this week, but another $ 47.5 million payment is due next week, and the company still has about $ 305 billion in outstanding debt.
What to watch out for
New jobless claims rise again unexpectedly as Fed warns labor market recovery “may take longer” (TBEN)
Stocks rally after Fed sticks to $ 120 billion monthly stimulus (TBEN)
Dow dips 600 points to two-month low as experts fear recession-like meltdown with Evergrande (TBEN)