S&P 500 Jumps as Cyclical Stocks Continue Post-Fed Rally

© Reuters.

By Yasin Ebrahim

Investing.com – The S&P 500 jumped Thursday, as the broader market continued its post-Federal Reserve rally, powered by energy and financials amid easing global growth concerns.

The rose 0.3%, and remained close to its earlier intraday record of 4,492.37. The gained 0.2%, or 71 points, the Nasdaq climbed 0.40%, after hitting an intraday record of 15,027.2.

The positive reaction in the markets suggests that investors “are more comfortable with the possibility of the Fed tapering,” Tyler Ellegard, Investment Analyst at Gradient Investments, told Investing.com in an interview on Thursday. “The Fed has been buying $120 billion of bonds a month, and its balance sheet has exploded … a monthly taper of $15 billion isn’t going to have that big of an effect.”

The Federal Reserve signaled it would begin to taper its bond-buying program at its next meeting in November — should the economic progress continue – and expected to conclude tapering in mid-2022.

Cyclicals stocks led the broader move higher as investor concerns eased about a China-led hit to the global economy from the possible collapse of real estate giant Evergrande. In a move that reassured investors that Beijing would seek to limit the impact of Evergrande’s potential downfall, China’s central bank pumped another 120 billion yuan of liquidity into the banking system overnight Thursday.

Financials were pushed by bank stocks, underpinned by rising Treasury yields — following the Fed’s signal for a November taper – with the 10-year yield nearing 1.4%.

Zions Bancorporation (NASDAQ:), SVB Financial (NASDAQ:), and Lincoln National (NYSE:) led financials higher.

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Higher interest rates boost the return on interest that banks earn from their loan products, or net interest margin – the difference between the interest income generated by banks and the amount of interest paid out to depositors.

Reopening stocks – those that benefit from easing pandemic restrictions – were in rally mode, with airlines and cruise companies in the ascendency.

Cruise company Carnival (NYSE:) confirmed that it was on track to resume over 50% of its fleet capacity by October. Its shares rallied 4%.

In megacap tech, Apple (NASDAQ:) added to recent gains as investors talked up the prospect of improved iPhone sales.  

“Based on gauging pre-order activity across the globe to its predecessor iPhone 12 we believe iPhone 13 pre-orders are currently running north of 20% ahead of Apple’s launch last year, an impressive start for this latest upgrade cycle out of Cupertino,” Wedbush said in a note.

On the economic front, initial weekly jobless claims unexpectedly increased by 16,000, missing expectations for a 15,000 decline. Economist suggested the weakness was related to disruptions from Hurricane Ida. 

“Claims were boosted by a combination of relatively unfriendly seasonals and, we think, claims triggered by Hurricane Ida but delayed until after the chaos subsided,” Pantheon Macroeconomics said in a note.

The strong day of gains on Wall Street followed a slump earlier this week, which was a buying opportunity as markets are likely to grind higher supported by a healthy amount of investor dollars on the side lines.

“There is about $3-to $4-trillion on the sidelines in money market accounts, so any type of correction that we get — whether it’s 3%, 4%, or 5% — that cash will be put back to work,” Ellegard said. “I think that is what’s holding up the market.”

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