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WALL STREET INSIGHT

US stocks on a roll in run-up to holiday season

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US stocks closed at more record highs, as bulls celebrated the disclosure of a new Federal Reserve chief, a strong jobs report and more positive surprises from the tech sector.

Gains are likely to continue this week as long as retailers' earnings are not as dire as feared.

After the most public selection process in the history of the central bank, President Donald Trump named Fed governor Jerome Powell as the successor to Janet Yellen.

Mr Powell has been embraced by markets as someone who is friendly to their cause. Economists expect him to be even more reluctant to raise rates than Ms Yellen has been.

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While that's a positive development for the stock and housing markets, it could anger some constituencies who have long maintained that low interest rates are eroding the value of the dollar and encouraging speculation.

"We expect the Senate to confirm Powell, but given that many Republican senators have previously expressed criticism of accommodative monetary policy, the confirmation hearings could become contentious," said analysts at brokerage Nomura Securities, in a note to clients.

Employers added 261,000 workers in October, suggesting that the weakness in September was entirely hurricane-related. The unemployment rate fell to 4.1 per cent, the lowest since 2000.

The strength of the report was tempered by some of the finer details: for one thing, the decline in the unemployment rate was partly due to the number of people who dropped out of the workforce.

"The story from the October jobs report was the lack of wage growth," said analysts at brokerage Bank of America Merrill Lynch Global Research, in a note to clients.

One reason the Fed is widely expected to raise rates in December is the reappearance of inflation in general and wage inflation in particular in recent reports.

The slowdown in wage growth could be temporary but fears that it could slow the upward march of interest rates weighed on bank stocks on Friday.

The tech sector has been the engine of growth for the stock market for much of the eight-year bull market and shows little sign of slowing.

Apple shares rose to new highs, bringing it to the brink of US$1 trillion in market capitalisation after strong earnings and reports that there were long queues outside stores stocking the premium iPhone X.

"Tech dominance continues," said analysts at Bank of America Merrill Lynch in a note to clients. The analysts said the tech sector rose 7.8 per cent in October versus a 2.3 per cent gain for the Standard & Poor's 500.

Chip makers, one of the hottest tech sub-sectors, have become more volatile after a disappointment from Advanced Micro Devices. That company makes chips for gaming and other intensive computer applications. One of its main rivals, Nvidia, which was the biggest gainer on the S&P 500 last year and for much of this year, reports earnings this week.

Chip makers will likely also receive a lift from a report that two of the largest semiconductor companies, Broadcom and Qualcomm, were merging.

Furious speculation continues at the intersection of finance and technology. The price of bitcoin surpassed US$7,000, and is now up by a factor of seven on the year.

The latest round of interest was sparked by recent reports that the world's largest exchange operator by volume, CME Group, was considering launching bitcoin futures.

Paul Donovan, an economist at UBS Wealth Management, responded to the latest rally by drawing a parallel to one of the most famous speculative bubbles in history, with the following tweet: "Amsterdam 1636. Cash-settled futures markets in tulip bulbs start. Prices soar. Amsterdam February 1637. Tulip bubble bursts."

If there is a bitcoin crash, it could have ramifications for the broad market. The market value of all digital currencies has risen to around US$200 billion - a significant level that no other asset class has reached in so short a time.

However, with September and October, two of the traditionally volatile months, out of the way, the stock market is entering the run-up to the holiday season, usually the strongest part of the year for stocks.

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