Nasdaq Jumps while Dow posts back-to-back days of losses.


Author: Jeffrey Taylor

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There was a mix in stock on Thursday as investors weighed a batch of solid corporate earnings results against current inflation concerns. 

After so many ups and downs of the market, S&P 500 and Nasdaq, which can be traded on eToro, ended the session higher. The Dow lagged, which was led by a reduction in the Cisco(CSCO) shares. The quarterly results posted by the company indicated component shortages, and the same is also expected for the current quarter of the computer networking equipment company. On the other hand, Alibaba’s (BABA) quarterly disappointing result has raised the alarm about the pace of growth in China, as company executives called people’s attention to slow consumption trends. 

National Association of Securities Dealers Automated Quotation. NASDAQ

In another scenario, Nvidia shares an example of a stock that can be traded on eToro jumped after the company posted record quarterly revenues and full-year solid guidance. This report is an indication that the company is effectively managing the global shortage and meeting elevating demands. 

The volatility in the market for the past couple of days has been coincidental with some economic data. For instance, the news on Thursday showed jobless claims reduced modestly last week, and another report on Wednesday showed an unexpected drop in new home construction last month. 

Also, comments about inflation have increased and have triggered investors’ concern over increasing price pressures. During the earnings call on Wednesday, Target(TGT) executives noted rising labor and other input costs. They also added to the complaint made by other companies regarding inflation. 

Investors Central Focus 

The possibility that increased inflation will continue for a while longer than it was previously forecasted has been the primary focus of investors. The concern borders around the potential dampening effect of inflation on consumer spending and as a catalyst for the Federal Reserve to raise interest rates sooner than it was expected. 

The U.S Central Bank has so far been accommodative and has indicated that an initial increase in interest rate could occur in early 2022. This is, however, dependent on how the economy recovers. Amidst all these, investors continue to await the announcement from President Joe Biden regarding his nominee for the Fed Chair. Expected candidates are Jerome Powell- current Fed Chair, and Lael Brainard- current Fed Governor. 

The current Fed’s accommodating behavior has been of support to the equity market and capped treasury yield. Thus, helping investors to focus on riskier assets like stocks over bonds. Below are the statements made by Uma Pattarkine, CenterSquare senior analyst, regarding the Fed’s behavior while discussing with Yahoo finance on Wednesday. 

“The yield question is kind of global in nature. We still see [central] banks being very, very accommodative. So it seems like we might be kind of in this ‘lower rate for a longer time’ environment. At this point, investors really need to be looking at yields, where they can get it elsewhere in the market if they’re not planning on getting it through fixed income in the near future until we see that movement in the global rate market.”

UBS View of the inflation story

Jason Draho, UBS head of assets allocation, said investors should be conscious of both the rising inflation and the improving economic growth in the current macro environment when contemplating an investment. 

Here is what he told Yahoo finance: “The environment right now that’s leading to inflation is also tied to a very strong economic recovery in the U.S., but even increasingly globally. Part of that story means it’s not just an inflation story. It’s a growth story.”

He added that “So things that you can do in your portfolio and ways to take advantage of it and sort of get the benefit of both aspects, which means buying things tied to what’s in demand … things like commodities, financials, things of that sort. So part of this is a hedge for inflation, but part of it is also a play for longer-term recovery.”

Draho also mentioned that some factors contributing to present levels of inflation, like supply-side disruptions, may soon dissipate. 

“I’d say we’re at the peak or even probably past the peak,” of supply chain tie-ups, he added. 

He concluded by saying, “It’s still going to probably take at least a few quarters for things to really sort of be running fully efficiently.”

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Jeffrey Taylor is a retired mechanical engineer who has an interest in all things financial, including emerging markets and cryptocurrencies.