The S&P 500 and the Nasdaq hit record highs on Monday after President Joe Biden picked Federal Reserve Chair Jerome Powell to lead the bank for a second term, keeping the status quo as the central bank plans to wind down pandemic-era stimulus.
Powell's nomination, which will see him leading the Fed for another four years, was largely welcomed by investors hoping for no big changes in the Fed as it guides the economy through a post-COVID recovery.
Fed Governor Lael Brainard, who was the other top candidate for the job, will be vice chair, the White House said.
"Markets like predictability ... while Brainard may have been a fine choice, the markets would not know what to expect from her even though the general consensus was that it meant lower rates for longer," said Randy Frederick, managing director of trading and derivatives, Charles Schwab, Austin, Texas.
Financials were the best performers in early trade with a 1.0% jump.
Wall Street's major banks surged between 1.5% and 3%, tracking a jump in Treasury yields as investors priced in the Fed's policy tightening by the first half of 2022. Wells Fargo & Co led gains among its peers.
Wall Street dips on rate hike uncertainty
"The message is that we're on a course to reduce tapering and we're headed towards higher interest rates, which will most likely going to be raised in the middle of next year, and I think Wall Street has already digested most of that," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.
Futures contracts tied to the Fed's policy rate moved, with money markets now expecting the US central bank to raise interest rates by 25 basis points by next June versus July previously.
"This is sort of another confirmation that the Fed has a plan."
Safe-haven sectors including real estate and healthcare were the worst performers in early trade, dropping about 0.6% each.
The Nasdaq hit a second consecutive record high as demand for technology stocks remained strong. Heavyweights including Amazon, Apple and Meta Platforms rose between 0.1% and 2%.
The tech sector outperformed last week, helping the Nasdaq close over the 16,000 level for the first time as concerns over rising COVID-19 cases in Europe drove up safe-haven demand.
Travel and energy stocks, which were among the worst performers last week, also surged.
At 09:51 a.m. ET, the Dow Jones Industrial Average was up 238.50 points, or 0.67%, at 35,840.48, the S&P 500 was up 33.62 points, or 0.72%, at 4,731.58, and the Nasdaq Composite was up 105.57 points, or 0.66%, at 16,163.01.
Investors were now awaiting a slew of economic data this week, including IHS business activity readings, personal consumption expenditure, and minutes of the Fed's latest meeting.
Among other movers, Tesla Inc gained 4.8% after CEO Elon Musk tweeted that the Model S Plaid will "probably" be coming to China around March.
Activision Blizzard slipped 1.1% after a media report that the video game publisher's top boss, Bobby Kotick, would consider leaving if he cannot quickly fix culture problems.
Advancing issues outnumbered decliners by a 1.72-to-1 ratio on the NYSE. Declining issues outnumbered advancers for a 1.08-to-1 ratio on the Nasdaq.
The S&P index recorded 19 new 52-week highs and seven new lows, while the Nasdaq recorded 56 new highs and 247 new lows.
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