The week began with the S&P 500 index setting a new all-time high and that positive momentum has carried on, with the Dow Jones Industrial Average joining the S&P 500 in breaking fresh highs in Tuesday’s trading.
By Peter Martin
Tuesday, August 26, 2014
By early afternoon on Wall Street, the DJIA was up 0.28% or 48 points at 17,125, after setting an all-time intraday high of 17,153.80 earlier in the session. The S&P 500, meanwhile, advanced 0.21% or 4.2 points to 2002.13. The blue chip index broke above 2000 for the first time yesterday and went even better today with a record high of 2005.04 set in the morning in New York.
The advances in the stock market were supported by the strength of the day’s economic news, with a huge leap reported in durable goods orders and a surprise lift in consumer confidence.
New orders for durable goods (that is, items expected to last three or more years) surged 22.6% in July, a record jump for this indicator, which smashed expectations for single-digit percentage growth. Furthermore, June’s orders were upwardly revised from 0.7% to 2.7%. The large gain in July’s orders was driven by a huge uptick in the notoriously volatile component of transportation, though, which soared 74.2%. Given the very unpredictable and irregular behaviour of this component, we should not read too much into the headline advance (excluding transportation, new orders actually declined 0.8%), but there are still positives to be taken from the data: excluding transportation, new orders in June were upwardly revised from 0.8% to 3.0% and year-on-year new orders were up 6.6% excluding transportation; there is enough here to maintain optimism that the manufacturing sector is gaining ground.
The Conference Board’s consumer confidence index climbed to 92.4 for this month, a post-recession high, up from July’s 90.3 and confounding the consensus expectation which had pointed to a decline, with gains centered around the present situation part of the index. The report reveals stronger confidence in the jobs market amongst consumers, which has positive connotations for consumer spending — all other things being equal, consumers who are feeling good about their job prospects will feel more inclined to spend money. This is very significant for the economy, as consumer spending is a key driver of US GDP growth.
The strength of today’s domestic economic news has naturally benefitted the US dollar, pushing EUR/USD down 0.19% to 1.3167 and GBP/USD down by the same percentage to 1.6546. Fed Chair Janet Yellen reiterated her view last week in remarks at the annual Fed conference in Jackson Hole that accommodative monetary policy will likely remain for a ‘considerable time’ after the current stimulus scheme comes to an end, but did also stress that better-than-expected performance by the economy could accelerate the Fed’s timeframe, meaning ‘ increases in the federal funds rate target could come sooner than the Committee currently expects and could be more rapid thereafter’ in such a scenario.
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