The S&P 500 index and Dow Jones Industrial Average ended a 2-day win streak Wednesday, but the Nasdaq Composite climbed to its 16th record close in 2021, as investors focused on inflation and last week’s more hawkish policy update from the Federal Reserve.

The blue-chip Dow briefly flipped positive in afternoon trade, but ultimately closed lower with modest headwinds from declines in UnitedHealth Group Inc.
UNH,
-0.79%

and 3M Co.
MMM,
-1.42%
.

How did major benchmarks end?
  • The Dow Jones Industrial Average
    DJIA,
    -0.21%

    tumbled 71.34 points, or 0.2%, heading into the bell to end at 33,874.24.

  • The S&P 500
    SPX,
    -0.11%

    shed 4.60 points, or 0.1%, to finish at 4,241.84, not far from last week’s record closing high at 4,255.15 and its all-time intraday peak at 4,257.16.

  • The Nasdaq Composite Index
    COMP,
    +0.13%

    climbed 18.46 points, or 0.1%, closing at a record 14,271.73, after establishing a record intraday peak at 14,317.66 in Wednesday action.

On Tuesday, stocks pushed higher, with the Nasdaq Composite closing at a record, while the Dow added 68.61 points, or 0.2%, and the S&P 500 rose 0.5%, leaving it 0.2% away from its all-time high finish of 4,255.15 on June 14.

What drove the market?

Stocks struggled for direction Wednesday, a day after Federal Reserve Chairman Jerome Powell testified before a House committee, reassuring investors that the central bank expects rising inflationary pressures to prove transitory.

Powell’s tone has been echoed by other Fed officials, though both Atlanta Fed president Raphael Bostic  and Fed Governor Michelle Bowman agreed that with economic growth surging to an estimated 7% this year and inflation well above the Fed’s 2% target, inflation may take longer than anticipated to fade, according to a Reuters report.

“I think stocks are in a holding pattern after a very good Monday and Tuesday,” Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management, told MarketWatch.

While investors continue to weigh “the power of the reopening, Fed comments and the underlying earnings strength,” Mortimer expects it to be a couple of choppy months for stocks over the summer and into the fall, as investors search for more clarity on the trajectory of inflation.

“We all know that inflation is going to be hot this summer. It’s no secret. The question is how hot will it be next summer.”

Investors have begun to examine how long higher prices might last. “For the next nine to 18 months, we expect inflation to be ‘persistent, if transitory,’ with higher prints lasting longer than the few months many expect, but eventually ebbing back,” Michael Kelly, global head of multi-asset at PineBridge Investments, wrote Wednesday, in a midyear outlook.

For equities, Kelly expects no “major correction” in the eventual “tapering phase” of the Fed’s asset purchases, but “rather a more benign situation in which equities flatline or move sideways until bottlenecks eventually clear, making asset selection all the more critical.”

Powell’s more dovish comments Tuesday followed last week’s update by the interest rate-setting Federal Open Market Committee, where policy makers said that they expect to begin raising interest rates more quickly than investors had anticipated, while discussing when it would be appropriate to consider scaling back monthly bond purchases.

“Investors deciphered all this as implying the Fed won’t slam on the brakes too hard and will hold the market’s hand throughout the normalization process, which helped propel the rate-sensitive Nasdaq to new record highs as tech and growth stocks came back in vogue,” said Marios Hadjikyriacos, investment analyst at XM, in a note.

Technology and growth-oriented stocks benefited from mostly muted moves in yields for government debt, which were holding steady after Powell’s comments.

The economic front was mixed Wednesday, with a reading of the U.S. current-account deficit climbing 11.7% to $195.7 billion in the first three months of 2021.

The IHS Markit U.S. flash manufacturing purchasing managers index rose to 62.6 in June from 62.1 in May, while the U.S. flash services PMI fell to 64.8 in June from 70.4 in the prior month. The flash U.S. Composite PMI Output Index posted 63.9 in June, down from 68.7 in May, but nonetheless signaled a historically elevated rate of expansion in output across the private sector.

Moderations in activity growth were seen in both the manufacturing
and service sectors, with goods producers hampered in particular by significant supplier delays and both sectors reporting difficulties finding staff, Chris Williamson, chief business economist at IHS Markit, said.

In Europe, IHS Markit reported its flash eurozone composite PMI increased from 57.1 in May to 59.2 in June, its highest since June 2006, indicating a third successive month of accelerating output growth as the economy continued to open up from COVID-19 related restrictions.

Back in the U.S., new home sales fell 5.9% to a seasonally adjusted annual rate of 769,000 units last month, the lowest level since May 2020, the Commerce Department said on Wednesday.

Shares of housing giants Fannie Mae
FNMA,
-32.14%

and Freddie Mac
FMCC,
-36.77%

tumbled more than 32% Wednesday after the Supreme Court rebuffed traders’ payout hopes around dividends routed to the U.S. Treasury Department over roughly the past decade. The structure of their regulator, the Federal Housing Finance Agency, also was deemed unconstitutional, which paved the way for President Joe Biden to replace Trump-era appointee Mark Calabria.

Investors after the close will hear from Boston Fed President Eric Rosengren, who is delivering remarks at an event at 4:30 p.m.

Which companies were in focus?
  • Southwest Airlines Co. LUV said Wednesday that Robert Jordan will succeed Gary Kelly as chief executive, effective Feb. 1, 2022. Its shares fell 1%.

  • Embark Trucks Inc., a maker of self-driving technology for the trucking industry, said Wednesday it is going public via a merger with special-purpose acquisition corporation Norther Genesis Acquisition Corp. II NGAB, in a deal with a pro forma implied enterprise value of about $4.55 billion.

  • Amazon.com Inc.
    AMZN,
    -0.05%

    said it planned Wednesday to announce commitments to buy 1.5 gigawatts of production capacity from 14 new solar and wind plants around the world as part of its push to purchase enough renewable energy to cover all of the company’s activities by 2025. Its stock fell 0.1%.

  • Sonoco Products Co.
    SON,
    -0.73%

    said Wednesday that it would will raise the price of all paperboard tubes and cores by at least 6%, effective with shipments in the U.S. and Canada on or after July 26. Shares slumped 0.7%.

  • EverCommerce Inc.
    EVCM,

    set terms of its initial public offering, as the Colorado-based provider of software-as-a-service for small- and medium-size service-based businesses aims to raise up to $344.1 million and be valued at up to $3.46 billion. The company is offering 19.12 million shares in the IPO, which is expected to price between $16 and $18 a share. The stock is expected to list on the Nasdaq under the ticker symbol “EVCM.” 

  • Sprinklr Inc.’CXM,  jumped 10% on its debut, following a downsized initial public offering that priced below the expected range, lowering what the customer-experience software company raised to $266 million from a previous expectation of up to $380 million. 

How did other assets fare?
  • The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, turned higher Wednesday to around 1.486% from 1.471% on Tuesday. Yields and debt prices move inversely to each other.

  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.1%.

  • U.S. oil futures finished higher, with West Texas Intermediate crude for August delivery CL00 up 0.3%, settling at $73.08 a barrel, after U.S. crude-oil inventories declined for a 5th week in a row.

  • Gold futures GC00 rose 0.3% to settle at $1,783.40 an ounce.

  • In European equity trading, the pan-continental Stoxx Europe 600 SXXP closed down 0.7% and London’s FTSE 100 UKX lost 0.2%.

  • In Asia, the Shanghai Composite SHCOMP finished 0.3% higher, the Hang Seng Index HSI rallied by 1.8% in Hong Kong, and Japan’s Nikkei 225 NIK fell less than 0.1% lower.

William Watts contributed reporting



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