US Stocks Rise, Dow Jones Turns Positive for 2020

What’s happening: US stocks ended higher on Friday, with the 30-component Dow Jones index wiping off losses for the year to return to the pre-pandemic levels.

What happened: The US Federal Reserve announced a major shift in policy on Thursday that would allow interest rates to remain at the current low levels for longer.

Strong economic reports released on Friday also lifted investor sentiment, which helped Wall Street stocks to surge to new highs in the previous session.

Why it matters: Wall Street experienced a choppy trading session on Thursday after the Fed Chairman Jerome Powell announced plans to shift the policy of average inflation targeting, putting an end the earlier practice of policymakers increasing interest rates to hold off higher inflation levels.

Market sentiment was also driven by upbeat economic reports released on Friday, which showed US personal income improving by 0.4%, with consumer spending rising 1.9% in July. Economists had expected personal income to decline 0.4% and consumer spending to rise just 1.6% in the month.

The final reading for the University of Michigan’s consumer sentiment index also improved, rising to 74.1 in August, from a preliminary reading of 72.8 and above July’s 72.5.

The Dow Jones index surged 161.60 points to close at 28,653.87 on Friday, driven by gains in the shares of Walmart and Coca-Cola. Walmart’s stock received a fillip when the company joined Microsoft in its bid to purchase TikTok. Meanwhile, Coca-Cola announced a major restructuring plan involving the closure of operating units and the departure of 4,000 workers to maintain liquidity amid the pandemic.

The S&P 500 added 0.7% to settle at 3,508.01, while the Nasdaq 100 rose 0.6% to 11,695.63. 

The Dow Jones index notched its third weekly rise in four weeks, gaining 2.6%, while the S&P 500 surged 3.3% and the tech-laden Nasdaq 100 recorded a 3.4% gain for the week. All three indices have climbed around 8% so far in August.

What to watch: With the Dow Jones index set for a major restructuring today, investors will keep an eye on news related to a smooth transition. Markets also await data on the Dallas Fed manufacturing index from the US. The Federal Reserve Bank of Dallas’s manufacturing index rose to -3.0 in July, versus a reading of -6.1 in the earlier month.

US stocks are expected to continue their strong run today, with stock futures trading higher in the European session.

Despite some slowdown in recent days, covid-19 cases in the US remain a major concern, with the total number of infections reaching almost 6 million.

Crude oil will be in focus today, after closing slightly lower on Friday.

Context: Oil futures settled lower on Friday, after news of Hurriane Laura not disrupting refineries after making a landfall on the Gulf Coast. Despite the decline in the previous trading session, crude oil managed to record gains for the week.

Details: Hurricane Laura resulted in at least six deaths after making a landfall as a Category 4 storm. However, refineries were not significantly affected by the hurricane and activity in the Gulf Coast is expected to resume shortly.

Baker Hughes reported on Friday that the number of active US oil rigs had declined by 3 last week, versus a rise of 11 rigs in the previous week.

WTI (West Texas Intermediate) crude for October delivery slipped 0.2% to end at $42.97 per barrel on the NYMEX (New York Mercantile Exchange). Oil prices rose 1.5% last week, notching gains for the fourth consecutive week.

October Brent crude declined 0.1% to settle at $45.05 per barrel on ICE Futures Europe, but still recorded a 1.6% gain for the week.

In other energy commodities, September gasoline climbed 2.4% to settle at $1.3155 a gallon on Friday, with prices gaining around 2.5% for the week.

What to watch: As refineries in the Gulf Coast region resume normal activity, oil prices could come under pressure. Last week, WTI faced major resistance at $43.50. Despite rising this morning, oil prices have not breached this level, trading at $43.45 during the European session. Investors expect a sharp downturn if crude oil rises past this price.

Other Markets: European indices were trading higher at 8:30am GMT, with the STOXX Europe 600, French 40 and Dax 30 index up by 0.4%, 0.7% and 0.5%, respectively.

Germany’s inflation rate, South Africa’s money supply M3, private sector credit and balance of trade, Brazil’s government budget value, Canada’s value of building permits, producer prices and raw materials prices, Russia’s money supply M2 as well as Saudi Arabia’s money supply M3 and bank lending growth.