Stocks cut gains after Fed raises concerns about economic outlook amid pandemic
Stocks gave back most of their gains on Wednesday after the Federal Reserve raised concern about the threat posed to the economy by the coronavirus pandemic.
The Dow Jones Industrial Average traded just below the flatline around 2:15 p.m. ET. The S&P 500 was down 0.1% along with the Nasdaq Composite.
“Members agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term,” the Fed said in the minutes from its July meeting.
Earlier in the day, the major averages rose as Apple became the first U.S. company to reach a market cap of $2 trillion. With that milestone, Apple officially doubled its valuation in just over two years. In 2020 alone, Apple has surged nearly 60% and was one of the stocks leading the market off its coronavirus lows. The stock was well off its highs in afternoon trading, however, climbing just 0.5%.
“The momentum in Apple was clearly pointing to this [record market cap] becoming self-fulfilling,” said Art Hogan, chief market strategist at National Securities. “While it’s got an elevated valuation, it’s on the precipice of massive new cycles of hardware with the rollout of 5G.”
“The company has also done a great job of being shareholder friendly,” said Hogan, referring to Apple’s recently announced stock split, the company’s dividend and buybacks along with “reinvesting in its ecosystem.”
Target, meanwhile, rose more than 11% after the retailer reported soaring profit and sales last quarter. Digital sales increased by 197% from a year ago. Lowe’s shares gained 0.3% after the home improvement retailer reported a 30% surge in second-quarter revenue.
Wednesday’s moves came a day after the S&P 500 broke above its high from Feb. 19 to confirm the start of a new bull market. The Nasdaq Composite also notched a record on Tuesday.
“Reaching a new all-time high may be a quickly forgotten speed bump in an ongoing new bull market, but if not substantially passed in the coming weeks, it could also prove to be a nagging glass ceiling that will continue to perpetuate fears this really is just a big bear market rally,” Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC. “Bulls need to ask whether the stock market may finally be getting ahead of its fundamentals while bears are forced to ask whether they are too underweighted in what could be just the beginning of a new bull market.”
To be sure, the market could become more volatile moving forward.
Coronavirus cases in the U.S. are trending lower, but officials are cautious as students begin returning to school and college campuses. Some colleges have been forced to change to all online learning because of outbreaks.
Meanwhile, Treasury Secretary Steven Mnuchin criticized Democratic leaders as unwilling to discuss a smaller relief package on Tuesday; however, Politico reported House Speaker Nancy Pelosi said she is was willing to cut some demands to get an agreement on the bill.
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