Markets open higher as Fed adopts new inflation policy

Wall Street shrugged off predictions of a mixed open to start higher across the board on Thursday after the Federal Reserve announced a new strategy that was widely interpreted as pointing towards an easier monetary policy stance.

Shortly after the opening bell, the Dow Jones Industrial Average was up 0.38% at 28,438 while the S&P 500 climbed 0.23% to 3,481 and the Nasdaq rose 0.2% to 11,685.

The central bank said it has adopted an average inflation target of 2%, adding that they also sought to “mitigate shortfalls of employment”.

The announcement was timed simultaneously with the start of Fed chair Jerome Powell’s speech at the Jackson Hole conference which is now underway.

7.45am: Wall Street expected to see mixed start

Once again, the tech-heavy NASDAQ is set to provide a bit of glitz in an otherwise dull market when trading starts stateside this afternoon.

The NASDAQ Composite, which rose nigh-on 200 points yesterday, is set to open around 110 points higher today at 11,975, putting the Dow and the S&P firmly in the shade.

The Dow Jones Industrial Average is expected to open 51 points lower at 28,281 while the S&P 500, which exerted itself yesterday in climbing 35 points, is tipped to sit down for a bit of a breather and open at around 3,475, down 4 points.

“Stock markets are paring gains on Thursday as investors eagerly await the appearance of Fed Chairman Jerome Powell at this year’s virtual Jackson Hole event,” said Craig Erlam, the senior market analyst at OANDA.

“The central bank’s monetary policy framework has been the hot topic this week, with everyone speculating about what changes the Fed will consider that will allow interest rates to remain lower for longer.

“Despite central banks offering unprecedented amounts of stimulus and stock markets hitting new highs on a regular basis, investors are craving another stimulus fix. With rates already at record lows, attention is turning to the timeframe, with investors effectively looking for guarantees that they won’t move for a considerable period of time,” Erlam continued

If investors really are the fiscal stimulus junkies Erlam believes them to be then perhaps they are, indeed, eagerly awaiting Powell’s pronouncements.

“Whilst Jerome Powell is the star performer, warm-up acts in the form of US GDP data (2nd revision) and initial jobless claims will also be in focus,” noted Fiona Cincotta of City Index.

“US GDP is expected to see a very slight downward revision to 32.6% from 32.9%. Initial jobless claims could garner more interest. Last week they rose back above 1 million, potentially the first sign of trouble after the Federal additional $600 unemployment benefit expired. Should claims remain over 1 million pressure will ramp up on Congress to agree to an additional rescue package,” she added.

Five things to watch for on Thursday:

• Jerome Powell’s long awaited speech at the Jackson Hole conference, where the Fed chair will likely outline the central bank’s stand on inflation. However other notable speakers at the conference will include the governor of the Bank of England Andrew Bailey and Bank of Canada governor Tiff Macklem
• The second estimate for US GDP growth in the second quarter of 2020. The previous reading showed a massive 32.9% contraction in the three months during the peak of the economic shutdown caused by the pandemic, pushing the American economy into recession
• US jobless claims data for the week ending August 22, which are expected to fall to 1mln from 1.1mln in the previous week
• Earnings data from computer maker Dell Technologies Inc (NYSE:DELL), clothing group Abercrombie & Fitch Co (NYSE:ANF) and firearms maker Smith & Wesson Brands Inc (NASDAQ:SWBI)
• Political developments from the final day of the Republican National Convention, which will see speakers including President Donald Trump and Senate Majority Leader Mitch McConnell

Story by ProactiveInvestors