The Nasdaq Composite Index closed at a record high Tuesday as a recovery in technology shares emboldened investors and Federal Reserve Chairman Jerome Powell reiterated his upbeat assessment of the economy.
The dollar extended gains and Treasuries were little changed after Powell told a Senate committee that the Fed will continue to gradually raise interest rates “for now” to keep inflation near target amid a strong U.S. labor market.
Technology shares had started the day lower after disappointing subscriber growth at Netflix weighed on the rest of the FAANG stocks — Facebook, Apple, Amazon, Netflix and Alphabet’s Google.
“The ability of Netflix to bounce off its opening lows, and Amazon to do the same, has given investor’s confidence that the big momentum stocks are not suddenly going to fall out of bed,” said Matt Maley, equity strategist at Miller Tabak + Co. “The other thing is Chairman Powell did not say anything that was overly hawkish in his opening statement.”
Earnings and U.S. monetary policy have become the main drivers of market sentiment this week. That’s giving respite from a backdrop of worsening trade relations between the world’s biggest economic powers.
Company results have been mixed thus far, with Deutsche Bank AG and Bank of America Corp. beating estimates, counterbalancing the Netflix reading.
“The concern is as interest rates rise, what has been a market that’s stretched the bounds of valuation is going to have to be repriced to reflect higher rates,” Michael Arone, chief investment strategist at State Street Global Advisors, said in an interview at Bloomberg’s New York headquarters. “Any time there’s relief to that, folks are applauding the fact that valuations can stay a bit elevated for longer.”
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Powell addressed Congress with the underpinnings of the U.S. expansion looking solid. Unemployment stands close to an 18-year low and inflation is around the Fed’s 2 percent target, though some sentiment indicators are starting to flash warning signs over escalating trade disputes. He will appear before the House Financial Services Committee Wednesday.
Crude recovered after tumbling more than 5 percent in two days and breaching key price levels as focus shifted to declining stockpiles in the U.S. In the U.S., crude stockpiles dropped by an estimated 4.2 million barrels last week, according to a Bloomberg survey of analysts ahead of an Energy Information Administration report on Wednesday and the industry-funded American Petroleum Institute later Tuesday.