S&P 500 logs best 2016 close as Yellen plays down jobs report
The S&P 500 notched its best finish of the year Monday as stocks pushed higher, even as U.S. Federal Reserve Chairwoman Janet Yellen said a rate-hike following an ugly jobs report on Friday was still a possibility.
The Fed boss cautioned investors against placing too much emphasis on a disappointing jobs report and said that although Friday’s labor data were “concerning,” rising employment, household incomes, and consumer confidence, signaled that the domestic economy is in relatively good shape.
The S&P 500 index advanced 10.28 points, or 0.5%, to 2,109.41, led by a 2% gain in energy stocks. The index marked its best close in 2016 and registered its longest streak of trading sessions—41 days—without a 1% or more drop since July 2014, according to Dow Jones data. The advance puts the large-cap benchmark just 1% shy of its record on May 21, 2015 of 2,130.82.
The Dow Jones Industrial Average rose 113.27 points, or 0.6%, to close at 17,920.33, as Boeing Co. shares leapt 3.6% following a report that Iranair was in talks to potentially buy over 100 jets from the aerospace giant.
Meanwhile, the Nasdaq Composite Index climbed 26.20 points, or 0.5%, to finish at 4,968.71.
While Yellen’s speech was slightly more hawkish than expected, it didn’t drastically alter investors’ expectations for the pace of rising interest rates, said Mohannad Aama, managing director at Beam Capital Management.
The likelihood of a Fed rate increase this summer dropped sharply after official data showed the U.S. economy added only 38,000 new jobs in May—far short of expectations. “She wanted to push the needle back toward the center” after last week’s jobs number sparked a drastic revision of investors’ rate-hike expectations, Aama said.
Odds of an interest-rate hike in June were at 4% after Yellen’s remarks, compared with about 21% before the jobs data, according to the CME Group’s FedWatch tool, which measures trading activity in the federal-funds futures market.
“Obviously, she’s more hawkish than expected by saying we can’t put too much weight on one month’s data,” Aama said. “But I don’t think it was much of a surprise that she was going to have a hedged speech.”
However, Yellen did make reference to external factors posing a risk to the U.S., including the U.K. exit from the European Union—known as Brexit—and the challenges facing China as it rebalances its economy. She reiterated the central bank’s focus on economic data as it determines when to normalize monetary policy.
Overall, messaging from the Fed was mixed on Monday. In remarks earlier Monday, Boston Fed President Eric Rosengren said the economy was still strong enough to justify a rate hike in the coming months. However, Atlanta Fed President Dennis Lockhart said the Fed should be patient before raising rates again.
Although Lockhart isn’t a voting member of the Fed’s policy committee this year, his views are watched closely because he’s seen as a key moderate voice. Rosengren is a voting member.
Some of this confusion was playing out in market’s initial reaction to Yellen, said Michael Antonelli, equity sales trader at R.W Baird & Co. Stocks pared some of their gains during Yellen’s speech, which started at 12:30 p.m. Eastern Time, only to gather momentum afterward.
“They’re having trouble forming a cohesive message and that’s why you’re seeing the market swing around,” Antonelli said.
Some analysts cautioned that there has been enough good news to justify a summer hike.
Other economic data—including reports on home sales, consumer spending and manufacturing activity—have improved in recent weeks, suggesting that the U.S. economy remains on solid footing.
On Monday, investors favored growth-oriented sectors like energy, materials and financials—the session’s best-performing sectors—while rotating out of utilities and consumer-discretionary shares, which are typically viewed as defensive plays, analysts and investors said.
Oil prices rise: Meanwhile, attacks on pipelines and equipment in Nigeria helped push oil prices higher. That helped drive gains in energy shares with both Transocean Ltd. RIG, +14.68% and Chesapeake Energy Corp. CHK, +11.74% leading the S&P 500 with more than 10% gains.
Brent crude rose 1.8%, to $50.52 a barrel, and WTI oil for July settled up 2.2% at $49.69 a barrel. Crude retreated on Friday after Baker Hughes reported a rise in the number of rigs drilling for oil in the U.S., the first increase in 11 weeks.
“If you’re going to see a constructive rotation, you want to see financials in the lead and utilities lagging,” said Art Hogan, chief market strategist at Wunderlich Securities.
Movers: Adamis Pharmaceuticals Corp. sank 54% after the biopharmaceutical company said the Food and Drug Administration will require more tests for its new drug application linked to a treatment for a severe allergic reaction.
Shares of French drug giant Sanofi SA and U.S. partner Regeneron Pharmaceuticals Inc. edged higher after they announced positive news on a trial of their drug dupilumab in treating a skin condition.
Shares of Ocular Therapeutix plunged 43% after it said a Phase 3 trial of a pinkeye treatment was unsuccessful.
Other markets: The FTSE 100 index gained 0.4% to 6,209.63, making it the best performance across European regional indexes.
In Asia, the Nikkei 225 closed lower along with the Shanghai Composite Index SHCOMP, +0.07% while the Hong Kong Hang Seng Index HSI, +1.42% and Australia’s ASX 200 XJO, +0.20% closed higher.
The pound GBPUSD, +1.0596% tumbled to a three-week low at $1.4353 after two new polls showed an increase in support for the U.K. leaving the European Union. British voters will vote on the issue on June 23. Gold futures GCQ6, -0.28% settled up 0.4% at $1,247.40 an ounce.
Source: MarketWatch
