INVESTORS managed to shrug off new concerns about China’s economy, the coronavirus Delta variant and turmoil in Afghanistan to largely drive stocks higher while also boosting some more defensive investments.
Wall Street rebounded after early losses on Monday to see two of its three major indices close higher with the S&P 500 posting a new record high. The tech-heavy Nasdaq was the only index to end the day lower.
The Dow Jones Industrial Average rose 110.02 points or 0.31%, the S&P 500 gained 0.26% but the Nasdaq Composite dropped 0.2%.
The MSCI world equity index which tracks shares in 45 nations fell 1.24 points or 0.17%.
The ability to shake off new concerns about the viability of a global economic comeback and chaotic images out of Afghanistan underscored the appeal of US stocks, according to analysts.
“I would have expected much more downside given a difficult weekend of geopolitical headlines in the Middle East and since the good news of earnings season is now behind us,” said David Bahnsen, chief investment officer for The Bahnsen Group.
“The ‘there is no alternative’ trade is very resilient right now which is benefiting US stocks as there simply aren’t attractive alternatives for stock investors outside of the US.”
At the same time, safe-haven investments such as gold, the greenback and US Treasuries saw increased investor demand amid appetite for lower-risk avenues with so much uncertainty globally.
“We still remain positive on the outlook and think rates trend higher and cyclical sectors have another leg of outperformance, but admittedly there are downside risks given the Delta variant,” said Stephanie Roth, senior markets economist with J.P. Morgan Private Bank.
The US dollar ticked up against a basket of six major currencies, rising 0.1% to 92.623 after dropping to a one-week low on Friday (Aug 13).
In more risk-off moves, US Treasury yields slipped as demand for safe-haven US bonds ticked up. Benchmark 10-year yields fell four basis points to 1.256% after getting as low as 1.223%. The yield curve between two- and 10-year notes flattened two basis points to 105 basis points.
Gold also got a boost from safe-haven sentiment. Spot gold ticked up 0.5% to US$1,787 per ounce. U.S. gold futures were up 0.6% at US$1,789.
Muted investor appetite kicked off the week after figures on July retail sales, industrial production and urban investment in China all missed forecasts, a trend that is only likely to get worse given the recent tightening in coronavirus restrictions there.
Oil prices settled lower with the Brent crude settled down US$1.08 or 1.5% at US$69.51/barrel after falling to US$68.14. US oil fell by US$1.15 or 1.7%, to US$67.29 after reaching lows of US$65.73.
Another major focus for investors this week will be Wednesday’s release of minutes from the July policy meeting at the Federal Reserve.
Markets will be looking for signals the Fed is preparing to begin easing back on its monthly bond purchases. Recent strong jobs data from the US is boosting expectations that the Fed could step back the stimulus sooner. – Aug 17, 2021
