ASX set to jump as Wall Street hits record high; GameStop slide accelerates
Stocks closed higher on Wall Street on Thursday (US time), helped by strong company earnings as well as optimism that Washington can reach a deal for another round of fiscal stimulus for the millions of Americans who need it.
The S&P 500 rose 1.1 per cent to a record high. A measure of small-company stocks rose twice as much, a bullish signal that investors are feeling more optimistic about the economy. All three major US indexes are on pace for weekly gains above 3 per cent, an encouraging start to February after a late fade in January. Treasury yields continued to move higher, another sign optimism about the economy.
The Dow Jones industrial average rose 250 points, or 0.8 per cent, to 30,977 and the technology-heavy Nasdaq was up 0.9 per cent and was also within striking distance of a record high. All three indexes are on pace for strong weekly gains above 3 per cent. It sets up the Australian sharemarket for a strong open with futures shortly before 8am AEDT pointing to a jump of 69 points, or 1 per cent, at the open.
Stocks have been mostly rallying this week, an encouraging start to February after a late fade in January. Volatility spiked last month amid worries about the timing and scope of another round of stimulus spending by the Biden administration and unease over the effectiveness of the government’s coronavirus vaccine distribution.
The Russell 2000 index of smaller company stocks rose 1.9 per cent in a sign that investors were growing more confident about the economy’s growth prospects. The yield on the 10-year Treasury rose to 1.14 per cent from 1.11 per cent late on Wednesday.
“The path of least resistance seems to be higher,” said Brian Price, head of investment management for Commonwealth Financial Network. “We had a few minor pullbacks since the start of the year, but it really seems an extension of what we saw in the fourth quarter where it seems the market is anticipating lockdowns ending, people going back to work and economies broadly opening.”
Wall Street continues to be focused on individual company earnings. Shares of eBay rose 5.5 per cent and PayPal climbed 6.7 per cent after both companies reported results that blew away Wall Street’s expectations.
This will continue to be a busy week for earnings for investors. Ford will report after the closing bell, along with Gilead Sciences, News Corp and Wynn Resorts.
“We’re really impressed with how corporate America has come through earnings season so far,” said Jeff Buchbinder, equity strategist at LPL Financial.
The performance so far is a surprising and welcome about-face from early projections for weak profits. Tech companies are doing particularly well, but financial and smaller companies are also releasing surprisingly good results, he said.
Analysts were expecting an earnings contraction of about 13 per cent heading into the latest round of quarterly reports, according to FactSet. With about half of companies reporting, the S&P 500 is now showing earnings growth of just under 1 per cent and estimates for both the next quarter and all of 2021 are improving.
Shares of the beaten-down companies that have been of intense interest by retail investors were down again. GameStop slid 39 per cent, continuing is sharp pace downward following its meteoric rise over the previous two weeks. At about $US56.80 a share, it’s still far above the $US17 price it fetched at the beginning of the year. It traded as high as $US483 last Thursday. AMC Entertainment was down 20.7 per cent.
In Washington, President Joe Biden urged Democrats lawmakers to “act fast” on his economic stimulus plan but also said he’s open to changes. Democrats and Republicans remain far apart on support for President Joe Biden’s $US1.9 trillion stimulus ($2.5 trillion) package, but investors are betting that the administration will opt for a reconciliation process to get the legislation through Congress.
In economic data, the number of Americans who filed for unemployment benefits fell below 800,000 last week, which was better than economist expectations but still remains high due to the pandemic. The Labor Department is due to report its jobs data for January on Friday. Wall Street is expecting the closely watched report will show the US economy added 100,000 jobs last month. That would follow a loss of 140,000 jobs in December.
Meanwhile, vaccine distribution continues to move ahead and Wall Street expects an eventual fiscal aid package from Washington to give the economy another jolt.
“Each passing day with a million plus shots going into people arms gets us closer to full reopening,” Buchbinder said. “This economy, we think, will really be rolling in the next couple of months.”
AP
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