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Fed Chair Powell Calms Investor Jitters, Energy, and Financials Push S&P Higher

Weekly Update – August 27, 2021

  • The S&P 500 index rose 1.5% last week in a rally that sent the market benchmark above the 4,500 level for the first time as investors were relieved by comments from Federal Reserve Chairman Jerome Powell that they interpreted as a sign the central bank isn’t rushing to begin tapering its bond buying stimulus program.
  • The S&P 500 ended Friday’s session at 4,509.37, up from last Friday’s closing level of 4,441.67 and marking a fresh closing high. The index also reached a new intraday high Friday at 4,513.33. It is now up 2.6% for the month of August, with just two sessions remaining in the month. It is up 20% for the year to date.
  • The weekly climb was boosted by a 0.9% Friday increase as Federal Reserve Chair Jerome Powell said while the central bank could begin scaling back its asset purchases by the end of the year if the economy performs as expected, he anticipates rising inflation will prove transitory and sees the delta variant of the coronavirus as posing near-term risk. The central bank thus “will be carefully assessing incoming data and the evolving risks,” Powell said.
  • Investors saw the comments by Powell as an indication that the central bank isn’t in a rush to begin tapering its stimulus efforts even as it still anticipates beginning tapering the bond buying by year-end. This helped ease the worries of investors who were concerned about how soon the Fed’s Federal Open Market Committee might begin the tapering.
  • The energy sector had the largest percentage increase last week, up 7.3%, followed by financials, up 3.5%. Other strong gainers included communication services, consumer discretionary, materials and industrials, up by more than 2% each. Technology climbed 1.4%.
  • Just four of the S&P 500’s 11 sectors were in the red for the week, led by a 2.1% drop in utilities. The other declining sectors included consumer staples, down 1.4%; health care, down 1.2%; and real estate, off 0.3%.
  • The energy sector was boosted by a jump in crude oil futures amid shrinking US inventories of oil and gas. Among the gainers, shares of Devon Energy (DVN) climbed 18% while receiving slight increases to its price targets from analysts at Morgan Stanley and Wells Fargo.
  • In the financial sector, shares of Zions Bancorp (ZION) rose 8.7% on the week as the financial services company said its board authorized an additional $200 million of share repurchases for Q3, boosting its total buyback authorization for the quarter to $325 million, or 3.5% of the company’s market capitalization.
  • On the downside, the utilities sector’s decliners included shares of Pinnacle West (PNW), whose principal subsidiary is Arizona Public Service, a provider of retail electricity service in Arizona. The company’s shares, which received an investment rating downgrade last week to sell from neutral from Goldman Sachs, fell 3.6% last week.
  • Next week, as the month of August wraps up, all eyes will be on the August employment data, including private sector data from ADP on Wednesday, the Labor Department’s weekly jobless claims on Thursday and the monthly nonfarm payrolls and unemployment rate to be reported Friday by the Labor Department.
  • Other economic data being released next week will include July pending home sales on Monday, August consumer confidence on Tuesday, August manufacturing data from Markit as well as the Institute for Supply Management on Wednesday, and August readings on the services sector from Markit as well as the Institute for Supply Management on Friday.
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