Wall Street drifts as stock rally takes a pause; yields drop

Marco Green
August 5, 2020

The Shanghai Composite index edged 0.5% higher to 3,383.66.

The Dow Jones industrial average climbed 164.07 points, or 0.6 percent, to 26,828.47, and the Nasdaq Composite added 38.37, or 0.4 percent, to close at another record, 10,941.17.

A rally in tech-related stocks and trillions of dollars in monetary and fiscal stimulus have lifted the S&P 500 to within about 3% of February's record high. But caution is still very prevalent across other markets: Treasury yields were falling, while gold was rising as investors sought safety.

Big Tech led the way higher again, and Microsoft and Apple alone accounted for most of the S&P 500's gain.

With the US corporate earnings season now past its half-way mark, a record number of companies have beaten dramatically lowered estimates, but the second quarter is still set to be the low point for earnings this year. The video-game maker reported even stronger profit growth for the spring than Wall Street expected as customers stuck at home played Grand Theft Auto and other games, which they paid for online.

American International Group Inc tumbled after its quarterly adjusted profit slumped. Some analysts cited several unusual items that clouded its report, such as COVID-related losses, which make it hard to extrapolate how AIG's profits will run from here. But multiple obstacles remain; investors say a deal is crucial for propping up the economy.

The discussions have added urgency now that $600 in weekly benefits from the federal government for laid-off workers have expired, just as the number of layoffs ticks up amid a resurgence of coronavirus counts and business restrictions.

This week's calendar includes earnings from Disney, as well as the July employment report, which will provide a window into the extent that the U.S. coronavirus resurgence in recent weeks has dragged down the economy.

With jobless claims rising again, all eyes this week will be on the Labor Department's employment report this Friday, which is expected to show far fewer jobs being created in July, after a record surge in the previous month.

Meanwhile, US-listed Chinese companies traded roughly higher, with all the top 10 stocks by weight in the Siamp;P US Listed China 50 index ending the day on an upbeat note.

The bond market was much earlier than the stock market to signal the coming economic disaster from the coronavirus pandemic. It has also remained much more cautious through the pandemic than the stock market has, in large part due to the Federal Reserve holding short-term interest rates at record lows. Gold for delivery in December rose $34.70 to settle at $2,021.00 per ounce.

In Europe, Germany's DAX slipped 0.4 percent to give back some of its big gain from a day earlier, when reports showed that manufacturing recovered across much of the continent last month. France's CAC 40 added 0.3 percent, and the FTSE 100 in London was up 0.1 percent.

Many market watchers also expect Washington to produce additional funds to support the U.S. economy after supplemental unemployment benefits expired, although leading lawmakers remain far apart on a package.

Japan's Nikkei 225 (JP:NIK) gained 1.4% while Hong Kong's Hang Seng index (HK:HSI) advanced 0.8%.

US equities closed higher on Monday with the Dow up more than 200 points, underpinned by strong gains in tech sector.

Stimulus hopes also lifted crude oil, with USA benchmark West Texas Intermediate up 1.39 per cent to US$41.58 per barrel after starting the day in negative territory. Brent crude, the global standard, added 0.4% to $44.32 per barrel.

Other reports by Click Lancashire

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