US stocks stall as Fed goes hard on interest rate rises

Federal Reserve chairman Jerome Powell is sticking with the programme ahead of revised second quarter GDP figures.
Northern Trust Wealth Management chief investment officer Katie Nixon says risks to the market are being ignored.

Revised figures for second-quarter US economic growth will give investors a better steer on whether the stock market can head higher as the US Federal Reserve reiterates its interest rate stance.

The S&P 500 last week reached the milestone of the longest-ever bull market but finished just shy of setting a new record close.

Economists surveyed by the Wall Street Journal forecast second-quarter gross domestic product increased at a revised 4.0% annual rate, down from the previous 4.1%.

The US Commerce Department will release the new GDP figure on Wednesday (Thursday, NZ time). July personal income data will follow the next day. In June, personal consumption expenditures increased by a seasonally adjusted 0.4%. Economists expect that rate to continue.

Stocks got a jolt on Friday when Fed chairman Jerome Powell, speaking at the annual Jackson Hole symposium, said the bank was sticking to its gradual course of interest rate increases.

The Dow Jones Industrial Average added 133.37 points, or 0.5%, to 25,790.35. The S&P 500 rose 0.6% to 2874.69 and the Nasdaq advanced 0.9%, to 7945.98. For the week, the Dow was up 0.5%, the S&P 500 was up 0.9% and the Nasdaq rose 1.7%.

Strong US numbers have made it “easy to sort of look past the headlines” for investors, Northern Trust Wealth Management chief investment officer Katie Nixon says.

Risks being ignored
Still, “US investors seem to be looking through a lot of risks right now” which, in addition to trade disputes, include the possibility of the Fed moving too quickly to raise interest rates, she adds.

Corporate earnings drove swings in individual stocks throughout the week. Shares of retailers rallied after Target reported its best quarterly result in more than a decade and TJ Maxx parent TJX raised its guidance.

On the downside, Gap and Victoria’s Secret parent L Brands both fell. The consumer-discretionary sector of the S&P 500 rose 2%, the second biggest gain by the 11 groups.

US government bond prices fell slightly. The yield on the benchmark 10-year treasury note settled at 2.826%, up from 2.821% on Thursday.

Yields rose in the morning after Federal Reserve Bank of Cleveland president Loretta Mester was upbeat on the economy in a television interview at Jackson Hole. But they moved lower when Mr Powell emphasised the need for caution in raising interest rates.

Oil prices rise
Oil prices climbed on Friday to post their best week since June.

US crude for October delivery finished at $US68.72 a barrel, a rise of 5.4% for the week after a bullish inventory report showed a larger-than-expected drop in US stockpiles. Brent crude, the global benchmark, fended the week at $US75.82 a barrel.

Stocks in Asia ended mixed after two days of mid-level trade talks between the US and China failed to reach any conclusion. The Shanghai Composite Index rose 0.2% on Friday, while Hong Kong’s Hang Seng fell 0.4%.

China releases its official gauge of factory activity for August at the end of this week. Economists expect the official purchasing manufacturing managers’ index to continue edging lower from July’s three-month low, as heavy rainfall disrupted production in some parts of China.

The Stoxx Europe 600 rose less than 0.1%, notching a weekly gain. Frances CAC 40, Germany DAX and the UKs FTSE 100 all rose 0.2% on Friday.

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