Wall Street seesawed its way through news-heavy Thursday trading that pushed and pulled on various parts of the market.
Federal Reserve Chair Jerome Powell announced a shift in policy, following a two-year review, that will see the Fed target 2% average inflation over time by allowing for periods of hotter inflation, rather than managing the 2% level tightly.
"The key to near-term monetary policy will be all about the Fed's dual mandate, but with one mandate being the target (employment) and one being the governor on how far the central bank is willing to go (inflation), but now with a greater willingness to press on employment gains, even with modestly above 2% inflation rates for some time," says Rick Rieder, BlackRock's Chief Investment Officer of Global Fixed Income.
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Also Thursday, the Labor Department reported last week's first-time unemployment claims exceeded 1 million for the 22nd time in 23 weeks. And the fight to contain COVID-19 was helped a bit by the FDA's emergency-use authorization of Abbott Laboratories' (ABT, +7.9%) cheap, quick and accurate antigen test.
In a choppy session of trading, the Dow Jones Industrial Average briefly eclipsed the 28,538 level it started 2020 at before settling at 28,492, a 0.6% gain. The Dow was helped by gains in Walmart (WMT, +4.6%) and Microsoft (MSFT, +2.5%), who are making a bid for the U.S., Canadian, Australian and New Zealand operations of popular social app TikTok.
Other action in the stock market today:
- The S&P 500 managed to eke out another record close, finishing 0.2% higher to 3,484.
- The Russell 2000 gained 0.3% to 1,564.
- The Nasdaq Composite was more subdued, losing 0.3% to 11,625.
Sluggish Employment Gains Might Come to Back to Bite Stocks
The Fed announcement and the Labor Department's data both underscored one of the biggest threats to the rally: a struggling labor market.
"This elevated number of people filing for unemployment benefits speaks volumes about the uncertainty businesses are facing," says Luke Lloyd, investment strategist at Cleveland-based Strategic Wealth Partners. "Without clarity on how the coronavirus will progress over the next few months, companies don't invest in growth areas and operate with a skeleton staff."
"The Fed's policy actions this year and the new strategy statement are clearly reflective of a Committee that is deeply committed to recovering the hard-won gains in jobs and growth, which the pandemic has since stripped away," Rieder says.
Buy-and-hold investors who are hunkered down in high-quality dividend payers with a long shelf life don't really need to sweat a shorter-term cool-off. But if you're a little more active, you know it doesn't hurt to occasionally take some chips off the table.
You might consider trimming any of these 18 stocks that the market is heavily betting against (although some risk-tolerant opportunists like to buy these stocks for the "short squeezes" that happen when the bears are wrong). But you also might want to examine some of the stocks Wall Street's "smart money" has been souring on.
Billionaires, hedge funds and other institutional money managers were feverishly selling during 2020's second quarter, and recent filings show which stocks they bailed on. We examined 25 stocks the billionaire set sold in Q2 2020 to see where there's reason for concern, and where the pros are simply cashing in on outsized gains.
Kyle Woodley was long MSFT as of this writing.
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