The major domestic equity indexes recovered nicely on Monday, from last week’s selloff, with the S&P 500 posting its largest one-day percentage gain since April. The primary reason was an easing of concerns that resulted from the bellicose behavior on the part of both the United States and North Korea.
Government officials on Sunday did their best to play down the risk of an imminent war with North Korea. Those concerns had helped wipe out nearly $1 trillion from global equity markets last week.
As a result, The CBOE Volatility index fell more than 3 points after it spiked to a nine-month high last week. Safe-haven gold, which hit two-month highs last week, also dropped.
Technology shares were among the day’s best performers, with Apple ending the trading day up 1.5 percent, while the S&P 500 technology index rose 1.6 percent.
Shares of Snap ended the trading up 6.5 percent after hitting a record low as large investors reported their latest stakes in the beleaguered social media company and as a wave of employees became eligible to sell their shares.
Tesla was up 1.7 percent after two brokerages raised their price targets on the stock, citing the potential success of the company’s Model 3 sedan.
Alibaba gained 1.9 percent after Dan Loeb’s Third Point bought 4.5 million shares in the Chinese e-commerce company.
Approximately 5.5 billion shares changed hands on the major domestic equity exchanges, as compared to the 6.3 billion share daily average for the past 20 trading days, according to Thomson Reuters data.
New York Fed Sees Rate Hike
New York Fed President William Dudley, one of the Fed’s most influential members, told the Associated Press that he expects the Fed to raise interest rates once more this year, and to soon begin shedding some of the Fed’s bond holdings. The effect was one of pushing back on doubts in financial markets and a slight reduction the market indexes prior to the closing bell.
A close ally of Fed Chair Janet Yellen, Dudley also praised the Trump administration for not “politicizing” the Fed’s decisions as some members of Congress have done in recent years.
His steady-as-she-goes comments on inflation and rates appeared to respond to growing skepticism in financial markets that the Fed will raise rates by December, and they prompted a rise in the dollar and in bond yields.
“It depends on how the economic forecast evolves,” Dudley told the AP. “If it evolves in line with my expectations … I would be in favor of doing another rate hike later this year.”
Although there is little doubt that the Fed planned to raise interest rates once more this year, a declinefsada in inflation readings in recent months to 1.5 percent, below a 2-percent Fed target, has raised doubts among investors who give about a 40 percent chance of the Fed following through.
More certain is the Fed’s well-telegraphed plan to announce the start date for beginning to shed some of the bonds in its $4.5-trillion portfolio, most of which it amassed to spur the economy in the wake of the 2007-2009 crisis.
“I don’t think the expectations of market participants are unreasonable,” Dudley, who has a permanent vote on Fed policy, said when asked whether predictions were accurate for the plan to be announced at a mid-September meeting. He predicted the portfolio would shrink to between $2.5 and $3.5 trillion after five years.
Investors and economists generally expect the Fed next month to announce that bonds will begin to run off around October 1. That is the month that the Treasury is expected to fully exhaust its remaining borrowing capacity in what is known as the “debt ceiling.”
This does “not really” pose difficulties for the Fed because the debt it holds counts against the limit, and it could choose to “delay the actual start date” of reducing the portfolio, Dudley said.
Elsewhere in Washington, speculation has heated up over who President Donald Trump would pick as Fed chair, with the president himself saying his economic advisor Gary Cohn as well as Yellen, whose term expires in February, are contenders. Fed officials and congressional Democrats have worried that that and other vacancies would leave the door open for Republicans to trim the Fed’s historic independence from politics.
Asked about Cohn, Dudley said he is a “reasonable candidate … who knows a lot about financial markets.” Both men are Goldman Sachs alumni: Cohn a president at the Wall Street bank and Dudley a partner.
“The Trump Administration has been very hands-off in terms of the Fed,” Dudley added when asked about threats to independence. “So, I think they’ve been very respectful of the monetary policy, not to politicize the monetary policy process.”
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