Upward Momentum May Lift S&P 500, Nasdaq To New Record Highs

The major U.S. index futures are currently pointing to a modestly higher open on Monday, with stocks likely to see further upside following last Friday’s advance.

Stocks may continue to benefit from recent upward momentum, which helped lift the S&P 500 and the Nasdaq to new record closing highs last Friday.

Traders remain optimistic about the outlook for the markets even though the Federal Reserve has signaled it plans to begin scaling back its asset purchases later this year.

The Fed’s asset purchase program has helped prop up stocks throughout much of the coronavirus pandemic, but traders seem to believe the strength of the economy will provide continued support.

Fed Chair Jerome Powell’s comments last Friday suggesting interest rate hikes remain a long way off may also increase the appeal of stocks.

Trading activity may be somewhat subdued, however, as investors look ahead to the release of the Labor Department’s closely watched monthly jobs report on Friday.

Reports on consumer confidence, manufacturing and service sector activity, and factory orders may also attract attention in the coming days.

U.S. stocks closed firmly in positive territory on Friday, reacting to Federal Reserve Chairman Jerome Powell’s remarks at the Jackson Hole symposium.

During his speech at the Fed’s annual symposium, Powell said the central bank is likely to begin tapering its asset purchases before the end of the year. However, he added that he still feels there’s “much ground to cover” before interest rate hikes.

The major averages all posted strong gains, with the S&P 500 and the Nasdaq moving on to post fresh record closing highs.

The Dow ended the session with a gain of 242.68 points or 0.7 percent at 35,455.80, after climbing to a high of 35,479.18. The S&P 500 ended stronger by 39.37 points or 0.9 percent at 4,509.37, slightly off a new record intraday high of 4,513.22. The Nasdaq settled at 15,129.50, jumping 183.69 points or 1.2 percent.

For the week, the Dow notched a gain of about 1 percent, while the S&P 500 and the Nasdaq surged 1.5 percent and 2.8 percent, respectively.

Powell said the economy has reached a point where it no longer needs as much policy support, indicating the Fed might start reducing the amount of bonds it purchases each month before the end of 2021, provided the economy continues to progress.

He added that while inflation is solidly around the Fed’s 2% target rate, “we have much ground to cover to reach maximum employment,” which is the second prong of the central bank’s dual mandate.

The Fed chair also explained why he continues to think the rise in inflation is transitory and will drop eventually to the target level. He said the “test has been met” for inflation, while there “has also been clear progress toward maximum employment.”

Powell added that some of the factors that pushed inflation higher are starting to abate. “Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary,” he said.

On the employment front, Powell noted that the delta variant of Covid “presents a near-term risk” to getting back to full employment. However, he said, “The prospects are good for continued progress toward maximum employment.”

In economic news, data showed personal income in the U.S. increased by 1.1 percent in July after a revised 0.2 percent uptick in June. Meanwhile, personal spending rose by 0.3 percent in July after jumping by an upwardly revised 1.1 percent in June.

The University of Michigan’s consumer sentiment index for August was revised to 70.3 from a preliminary reading of 70.2.

Energy stocks gained as crude oil prices rose sharply on possible disruptions in oil and natural gas production in the Gulf of Mexico region due to the impact of Hurricane Ida.

Commodity, Currency Markets

Crude oil futures are inching up $0.02 to $68.76 barrel after jumping $1.32 to $68.74 a barrel last Friday. Meanwhile, after surging $24.30 to $1,819.50 an ounce in the previous session, gold futures are edging down $0.40 to $1,819.10 an ounce.

On the currency front, the U.S. dollar is trading at 109.86 yen versus the 109.84 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1797 compared to last Friday’s $1.1795.

Asia

Asian stocks rose on Monday after U.S. Federal Reserve Chairman Jerome Powell’s remarks at the Jackson Hole symposium calmed fears over the tapering timetable.

That said, the monthly U.S. jobs report due later this week could be pivotal in determining how soon the Fed can trim stimulus.

Chinese shares ended slightly higher as the country’s securities regulator pledged to crack down on mismanaged private funds and weed out fake ones.

The benchmark Shanghai Composite Index edged up 5.99 points, or 0.2 percent, to 3,528.15, while Hong Kong’s Hang Seng Index ended 0.5 percent higher at 25,539.54.

Japanese shares advanced as Powell laid out a slower than expected path to U.S. rate hikes. The Nikkei 225 Index rose 148.15 points, or 0.5 percent, to 27,789.29, while the broader Topix ended 1.1 percent higher at 1,950.14.

Nippon Steel, Dowa Holdings, JFE Holdings and Mitsui OSK Lines all jumped around 5 percent. Heavyweight SoftBank Group dropped half a percent and Uniqlo operator Fast Retailing lost 2 percent.

Australian markets posted modest gains after miner Fortescue Metals Group said its annual net profit more than doubled. The benchmark S&P/ASX 200 inched up 16.20 points, or 0.2 percent, to 7,504.50, while the broader All Ordinaries Index ended up 28.50 points, or 0.4 percent, at 7,788.60.

Fortescue shares surged 6.6 percent, while mining heavyweights BHP and Rio Tinto rallied 2.5 percent and 3.1 percent, respectively.

Gold miners also ended broadly higher, with Northern Star Resources climbing 3.5 percent and Regis Resources adding 2.8 percent after bullion prices hit a nearly four-week high.

Energy stocks ended mixed as oil pared early gains in Asian trading. Banks ANZ and Commonwealth ended down more than 1 percent each.

Seoul stocks rose for a second straight session as concerns around taper and interest rate hikes eased. The benchmark Kospi edged up 10.29 points, or 0.3 percent, to 3,144.19.

Internet portal operator Naver rose 1.9 percent and steelmaker POSCO soared 5.4 percent, while LG Chem dropped 1.7 percent and Kakao Bank gave up 2.3 percent.

Europe

European stocks have moved modestly higher on Monday after Federal Reserve Chair Jerome Powell sounded more cautious than other Fed officials when talking about tapering.

The upside, however, remained capped after the Wall Street Journal reported that Beijing is looking at new rules that would restrict domestic internet firms from going public in the U.S.

The French CAC 40 Index and the German DAX Index are currently up by 0.2 percent and 0.1 percent, respectively, while the U.K. markets are closed for a holiday.

In economic news, Eurozone business and household confidence declined slightly in August following July’s record high, the European Commission said.

The economic sentiment indicator, an aggregate measure of business and consumer confidence, dropped to 117.5 in August from 119.0 in July.

ECB chief Christine Lagarde last month promised sustained support for the single currency zone, saying the central bank has learned from the errors of past crises and won’t derail the current economic recovery by withdrawing emergency support too early.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on pending home sales in the month of July at 10 am ET. Existing home sales are expected to rise by 0.4 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Stocks In Focus

Shares of Affirm Holdings (AFRM) are skyrocketing in pre-market trading after the payment network announced a partnership with online retail giant Amazon (AMZN).

Medical equipment maker Hill-Rom Holdings (HRC) is also likely to see initial strength after a report from the Wall Street Journal said Baxter International (BAX) is in advanced talks to acquire the company for about $10 billion.

On the other hand, shares of Moderna (MRNA) may move to the downside after Japan pulled another batch of the biotechnology company’s coronavirus vaccines from circulation due to contamination concerns.