Stock futures ticked up yesterday, Thursday, August 27, 2021, evening and extended trading after closing the regular trading session lower. This has been attributed to the ongoing Federal Reserve Bank summit that is expected to deliver a whole host of market-moving speeches. Investors, analysts and other industry players expect the Fed to introduce a less accommodative monetary policy, and are concerned about the new geopolitical matters arising particularly from Afghanistan.
Contracts on the benchmark S&P 500 Index (SPX) rose yesterday evening after the index closed lower earlier. Prior to this, the index had posted a winning streak in five consecutive trading sessions, including an all-time high. Just like the SPX, both the Dow Jones Industrial Average (DJIA) and the tech-heavy Nasdaq Composite Index had also closed regular trading in the red.
Some policymakers from the Federal Reserve Bank have issued hawkish commentary that has given some insight on what the Fed plans to do in the near future, and this has knocked stocks from the upward movement they had embarked on earlier this week. The crisis in Afghanistan where several U.S. service members were injured and others killed after explosions at the Kabul airport is also of concern to investors and what the U.S. might do about it. At the fall of the Afghan government to the Taliban over two weeks ago, we reported what that means for the U.S. stock market.
Esther George, the President of the Federal Reserve Bank of Kansas City said that she would prefer to start on the process of removing accommodative monetary policies that were introduced early last year at the onset of the coronavirus pandemic and begin tapering asset purchases soon. Analysts and some top officials at the Federal Reserve Bank had planned to keep these policies in place up to at least 2025 but the economy has recovered faster than expected so their plans might change soon as well.
George, who is currently an alternate voting member of the Federal Open Market Committee, will be a voting member next year.
Later today, Federal Reserve Bank Chairman Jerome Powell is going to deliver a speech at the Jackson Hole Symposium and in it, all eyes and ears will be stuck on the full picture he is expected to paint representing the Central Bank’s plan on the pace of the U.S. economic recovery from the effects of the coronavirus pandemic, and the ongoing threat of the Delta variant.
Unlike Fed officials like George and others that have issued hawkish comments lately, Powell’s have been more dovish, making investors believe that the Fed chair was more willing to wait a little bit longer to see the economy make more progress on its road to recovery before adjusting accommodative monetary policy. Due to this, analysts and institutional investors do not necessarily expect big announcements from the ongoing summit.
According to Yahoo Finance, Candice Bangsund, the Vice President and Portfolio Manager at Fiera Capital Global Asset Allocation said they are not expecting a formal definitive announcement today, and based this on how the macro landscape has deteriorated since the last Fed meeting in July when the debate to taper asset purchases started.
As mentioned earlier, Bangsund added that the Delta variant that is still spreading in the U.S. is still a major risk that is clouding the outlook of the economy, so Fiera Capital thinks Powell could take a more cautious and patient approach in regards to Fed’s decisions. Bangsund also added that Powell might now provide definitive guidance that investors and analysts are looking for, but would lay the groundwork for an eventual taper towards the end of this year after the Federal Reserve Bank has got a better and clearer outlook of the economy amidst the delta variant threat and the situation in Afghanistan.
Despite Thursday’s slight drop during regular trading, the benchmark S&P 500 is still holding on to near all-time highs thanks to numerous companies reporting stronger-than-expected earnings results in the second quarter of the 2021 fiscal year (Q2 FY2021). The solid economic data reported by the U.S. Labour Department about things like dropping jobless claims, and the Fed not scrapping accommodative monetary policies have also worked in favour of the SPX. The index has gained 19% year-to-date, and if it goes like this, it will register a 2% gain in August alone.
In a note to Yahoo Finance by Citi Global Wealth chief investment strategist Steven Wieting seen by this website, the analyst advised investors to be careful about making investments based on short term volatility instead of focusing on how the market will perform in the long term.
According to Weiting, a market that has fallen 20% will generate higher returns than a market that has gained 20%, but investors are more fixated on the good feeling a market that has performed well brings.
“These are really areas where you have to really re-estimate what the future returns will look like,” Weiting concluded.
As of 6:38 p.m. European Time on Thursday, August 26, 2021, this is how markets were trading:
- S&P 500 futures (ES=F): +3.5 points (+0.08%) at 4,470.00
- Dow futures (YM=F): +28 points (+0.08%) to 35,188.00
- Nasdaq futures (NQ=F): +13.25 points (+0.09%) to 15,288.00 (Source: Yahoo Finance).
The Delta variant threat
The delta variant of the coronavirus is continuing to be a threat to the lives of millions of people across the world, which also translates into the performance of the economy. According to Market Watch, over 150,000 people contract the virus every day in the U.S., and the New York Times tracker has reported that over 1,100 people succumb to it every day in the U.S. even though the vaccination program is being scaled up across the country.
In an effort to curb the spread, governments, companies, and organisations are encouraging their employees to get vaccinated, and some are taking up a notch by fining those that refuse to take the jab, with just a few exceptions.
An example of this is how the management of American airline company Delta Air Lines (ticker: DAL) announced that its employees who have not yet taken the COVID-19 jab will now pay a monthly fine of $200. Other employers like retail corporation Walmart (ticker: WMT) and the world’s telecommunications company AT&T (ticker: T) making it mandatory to have their employees vaccinated. The only exceptions to this are for religious or medical reasons.