The Dow Jones surged by 200 points as it opened on Tuesday morning as confidence in the COVID-shattered US economy grows – and one analyst warned that fears of a long-term inflation surge may be unfounded.
Shortly after opening at 34,584 points on Tuesday, the Dow gained more than 200 points to climb to 34,804 – a near record-high. It has since dropped again, but is still up on its opening, and sat at 34,662 points around midday.
The Dow tracks the value of shares for 30 of America’s largest publicly-listed companies, with increases in its value generally seen as a sign of a healthy economy.
It grew as Americans headed in their millions to beaches, shopping malls and bars and restaurants over the Memorial Day Weekend, the first public holiday since mask mandates were eased last month.
Millions also took to the skies, with the TSA saying Memorial Day traffic was up 500% on 2020, when the US was in the midst of the first wave of COVID-19.
The Dow and S&P 500 futures were near record highs by 11am, set to extend last week’s strong gains as investors bet on economically sensitive stocks benefiting the most from a post-COVID-19 recovery
Observers say the success of America’s vaccination program is fueling a return to pre-pandemic levels of economic activity.
The number of fully vaccinated American adults surpassed 40%, while 50.5% have received at least one dose, according to the Centers for Disease Control and Prevention.
The expected economic boom and general optimism in the economy is causing the price of stocks in airline companies, oil producers and hotel chains to soar.
Some analysts have expressed fears of a rise in inflation – the overall cost of goods and services – which they warn could increase the cost of living, and make America’s dollars less valuable.
Last month, it was revealed that the consumer price index – which measures the cost of a basket of everyday goods – had surged by 4.2 per cent in April, the highest leap since 2008. Rises in that index are linked to rises in inflation.
And on Friday, the Bureau of Economic Analysis revealed its personal consumption expenditure (PCE) analysis – another indicator of inflation – rose by 3.1 per cent in April.
Concerns have been stoked by the trillions of dollars printed to provide COVID relief, as well as a sudden demand for a wide variety of goods and services, pushing up prices.
Restaurateurs say they are being forced to put up prices to cope with the doubling in prices of basic ingredients like cooking oil and beef.
Stocks in airlines and oil companies, which stand to perform better as the economy reopens, were among the top gainers in pre-market trade, had climbed higher on Monday, with Exxon Mobil shares up nearly 4% just after 10am
So-called meme stocks such as Gamestop and AMC were also surging Teusday morning. The stocks have become popular among renegade investing groups such as Reddit’s Wall Street Bets
Millions hit the beaches and promenades and shopping malls to enjoy the first public holiday since mask mandates were lifted last month. Coney Island’s boardwalk in Brooklyn, New York, was packed Monday
The number of fully vaccinated American adults surpassed 40%, while 50.5% have received at least one dose, according to the Centers for Disease Control and Prevention
Tuesday’s top stock gains: Spurts of growth and more turbulence ahead
GameStop’s shares surged 10% to $245 in early trading Tuesday
A volatile start to the week on the stock market saw the Dow Jones and the S&P surge to near record highs. These were some of the best-performing shares Tuesday
LexinFintech: Up 27% to $11.69
A leading online consumption and consumer finance platform
Cloudera: Up 24% to $15.94
US-based company that provides an enterprise data cloud
AMC Entertainment: Up 20% to $31.53
Nationwide chain of cinemas
Meituan: Up 14% to $80.10
Chinese shopping platform for locally found consumer products and retail services
Marathon Oil: Up 12.3% to $13.60
Texas-based hydrocarbon exploration firm
GameStop: Up 10% to $245
Chain of video game stores and one of the so-called meme stocks
Source: Yahoo Finance
But Goldman Sachs analyst Chris Hussey said Tuesday there was some data suggesting the rise in inflation may not be a long term issue.
Hussey told CNBC: ‘Overall, given the market’s reaction to [Friday]’s PCE release, investor concerns about inflation may have been exaggerated — or perhaps already priced in.
‘Consensus may be building that the inflation we are seeing today is ‘good’ inflation — the kind of rise in prices that accompanies accelerating growth, not a monetary policy mistake.’
CNBC also cited falling treasury yields as evidence that inflation may not be surging as feared. Those yields – returns on investments – would be expected to rise during times of growing inflation.
The Federal Reserve will next meet to discuss inflation on June 15. Joe Biden’s administration has cited near-zero interest rates as a good reason to splurge trillions on his stimulus program, which includes multiple infrastructure projects.
But a rise in inflation would likely lead to a rise in interest rates to curb spending, making the federal government’s repayments far more expensive, and further increasing the US deficit, which has tripled since 2019 to $3.1 trillion.
Meanwhile, the S&P 500, which tracks the top 500 companies, also popped this morning, increasing to 4230 within a few minutes of the bell, before it also dropped back to close to Friday’s close of 4200.
The markets were closed Monday for the Memorial Day public holiday.
Market experts say investors were unperturbed by a surge in key inflation readings for April following reassurances from Federal Reserve officials that the ultra-loose monetary policy – including near zero interest rates – would remain in place.
Investors are now awaiting key manufacturing and services sector data to be released later in the week to judge the pace of an economic reopening, with the main event of U.S. payrolls due on Friday.
‘For now, they (investors) are embracing the economic data that shows improvements in the economy and are ignoring data that suggests that it’s going to lead to much higher prices and shortages that affect specific companies,’ said Rick Meckler, partner, Cherry Lane Investments in New Vernon, New Jersey.
‘The main driver behind the stock market is the reopening of the country… that’s motivating investors to feel a sense of optimism about markets and cause them to come back in and buy stocks with the idea that things will be better by the fall and earnings will improve.’
Industrial and airline stocks, which stand to perform better as the economy reopens, were among the top gainers in pre-market trade, while oil heavyweights Chevron and Exxon Mobil Corp rose between 1.7% and 1.6% on a promising outlook for fuel demand.
Exxon Mobil also entered an agreement with Equinor and Petrogal Brasil to develop an $8 billion oil field in Brazil.
American Airlines, United Airlines and Marriott International gained between 1% and 2%.
Cloudera Inc jumped 23.3% after private-equity firms KKR & Co and Clayton Dubilier & Rice LLC agreed to take the data analytics firm private in a $5.3 billion dollar deal.
A group of ‘meme stocks’ extended gains from the previous week with shares of AMC Entertainment Holdings Inc up 16.4% after the movie theater chain announced a $230 million capital raise.
The M2 money supply, which includes cash, checking deposits, and easily convertible ‘near money’ is seen spiking last year as the Fed flooded the market with money
Former Housing and Urban Development Secretary Ben Carson has claimed that President Joe Biden is leading the U.S. down the economic path of ‘Argentina or Venezuela’
Last week former Housing and Urban Development Secretary Ben Carson has claimed that President Joe Biden is leading the U.S. down the economic path of ‘Argentina or Venezuela’ with a record-setting budget and freewheeling monetary policy.
On Friday afternoon, hours before the holiday weekend started, Biden unveiled his $6 trillion budget proposal for next year.
This year’s projected deficit would set a new record of $3.7 trillion that would drop to $1.8 trillion next year – still almost double pre-pandemic levels. The national debt will soon breach $30 trillion after more than $5 trillion in already approved COVID-19 relief.
Biden proposes steep tax hikes on businesses and the wealthy to fund the huge new social programs in his budget, but the government must borrow roughly 50 cents of every dollar it spends this year and next. Government spending to tackle the COVID crisis – as well as Biden’s newly-unveiled budget – have sparked fears that inflation could rocket and push up the cost of living for many Americans.
‘The sad part to me, having spent my entire professional career as a pediatric neurosurgeon and being concerned about the welfare of children is seeing what we are doing to their future,’ said Carson, who served in the Trump administration, in an interview with Fox News.
‘These things can be done without consequences and it was Thomas Jefferson who said it is immoral to steal from future generations,’ he said.
Alan Natkiel, owner of New Hampshire restaurant Georgia’s Northside, said costs had spiked in the last 3 months The price of brisket has gone up 185%, chicken breast is up 70%, and fryer oil costs have doubled in the past three months
A perfect storm of rising oil costs, supply chain issues and labor shortages was also driving some restaurants to put prices up.
New Hampshire restaurateur Alan Natkiel, the owner of Georgia’s Northside in Concord, apologized to customers for putting prices up after the cost of basic items like oil, meat and gloves rose by as much as 300%.
He shared his frustration in a Facebook post at having to put meal prices up, as inflation reaches its highest level since 2008.
‘You don’t want to be like, ‘Hey customers, I just raised the price of your food because I have a glove issue,’ he told WMUR.com.
‘They don’t really want to hear that.’
The latest Consumer Price Index summary released this month by the Bureau of Labor and Statistics showed overall prices rose by 4.2% in the 12 months to May.
Gas prices across the US have now hit a seven-year high of $3.04 a gallon, according to the AAA, increasing the price of shipping.
Continuing supply chain disruptions from the pandemic are causing shortages in key fresh food and produce areas.
And a chronic labor shortage is placing added pressure on restaurants.
Some economists are not convinced that higher inflation will be temporary.
A survey from the University of Michigan on Friday showed consumers’ one-year inflation expectations shot up to 4.6 percent in May from 3.4 percent in April, hurting household sentiment. Their five-year inflation expectations rose to 3.0 percent from 2.7 percent last month.
‘Concerns about the future can cause households to become more conservative in their spending,’ said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. ‘The Fed is guessing that the rise in inflation will be temporary, and it better be correct.’
Though consumer spending moderated last month as the boost to incomes from stimulus checks faded, households have accumulated at least $2.3 trillion in excess savings during the pandemic, which should underpin demand. Wages are also rising as companies seek to attract labor to increase production.