Dow up nearly 300 points as investors focus on supply-chain pressures and Fed’s Powell

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Stocks were trading mostly higher Monday afternoon, despite weaker-than-expected manufacturing data that dulled some of the optimism around the recovery of U.S. corporations from the COVID pandemic.

How are stock benchmarks performing?
  • The Dow Jones Industrial Average
    DJIA,
    +0.87%
    advanced 281 points, or 0.8%, to 34,153.

  • S&P 500
    SPX,
    +0.49%
    were up 17 points, or 0.4%, to 4,199.

  • The Nasdaq Composite
    COMP,
    -0.31%
    fell 45 points, or 0.3%, to 13,917.

On Friday, the Dow posted a weekly decline of 0.5%, but notched a 2.4% gain in April, while the S&P 500 was virtually unchanged, but gained 5.6% last month. The Nasdaq Composite registered a weekly loss of 0.4% but jumped 7% in April.

Read: Charlie Munger ‘hates’ bitcoin’s rise: ‘disgusting and contrary to interests of civilization’

What’s driving the market?

The positive tone in U.S. equities at the start of the session took a brief hit after some economic data suggested that “crazy” prices and rampant shortages of parts, materials and labor could threaten the rebound in manufacturing.

The manufacturing index from the Institute for Supply Management fell to 60.7% in April from a 38-year high of 64.7% in the prior month. Though, any number above 50 marks an increase in factory activity, April’s reading fell short of analysts’ expectations for a reading of 65%.

“Whether that pace [of manufacturing activity] can be maintained remains to be seen,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Even a well-positioned and eager consumer sector could cool as price hikes accelerate, and the potential for supply-chain disruptions to slow production further could further curtail sales.”

Even with continued disruptions to supply chains, investors remain focused on a bright outlook for U.S. corporations despite the COVID pandemic, with some of the biggest companies affirming that a genuine rebound is under way.

The revival was at least partially on display as conglomerate Berkshire Hathaway
BRK.A,
+2.38%

BRK.B,
+2.18%
reported a 20% jump in its operating profit, rising to $7.02 billion from $5.87 billion in the year prior.

Berkshire, helmed by billionaire investor Warren Buffett, over the weekend also reported first-quarter net income of $11.7 billion, compared with a loss of $49.7 billion, in the year-earlier period.

See: Berkshire’s Munger: Stock buybacks for benefit of shareholders a ‘deeply moral’ act

Berkshire’s performance has helped to bolster confidence in equities to kick off May, traditionally a month associated with the start of a comparatively weak six-month seasonal stretch of trading.

“Overall, Q1’s earnings performance is shaping up to be one of the largest gains in
corporate profits since the tailwind from the Tax Cuts & Jobs Act of 2017,” wrote a Glenmede investment strategy team, in a Monday note. “All in all, positive earnings growth is expected to continue into the later stages of 2021, as we trend toward a version of economic normalcy.”

Of the S&P 500 companies that have reported results so far, 86% have beaten earnings expectations.

Investors also saw positive developments from Europe, bolstering confidence in the eurozone recovery. The European Commission on Monday proposed allowing entry by nonessential travelers who have been fully vaccinated to the region.

Meanwhile, Fed Chairman Jerome Powell, who was scheduled to speak at 2:20 p.m. Eastern Time at the Just Economy conference, was being parsed for further clues about the cental bank’s plans.

Anxieties surrounding the Fed’s response to a stronger economy also has investors on edge after Dallas Fed President Robert Kaplan said Friday that he thinks it is time to discuss tapering the Fed’s asset purchases.

Bernard Baumohl, chief global economist at The Economic Outlook Group, recently wrote that the Fed will have to walk a fine line as it eventually dials up interest rates and tapers an asset-purchasing program that has helped to support markets during the height of the pandemic-inspired stock selling in March.

“So what should the Fed do at this stage? Frankly, nothing major at this time. But as the economy regains its footing, Powell will face one truly vexing issue later this year: How do you reduce asset purchases without causing major turbulence in the bond market?” wrote Baumohl.

Which companies are in focus?
  • Clorox Co.
    CLX,
    -0.81%
    shares were down 0.7% after its fiscal third-quarter sales missed expectations. The company also swung to a net loss from a profit a year ago, as a result of an impairment charge of $329 million, or $2.11 a share.

  • Shares of Berkshire’s Class B shares
    BRK.B,
    +2.18%
    were up 2% after Buffett said Greg Abel, the conglomerate’s vice chairman in charge of non-insurance operations, would be his successor as CEO if Buffett left the job.

  • Tesla Inc. shares
    TSLA,
    -3.75%
    were trading lower by 3.6% after a German magazine reported that Tesla’s gigafactory in Berlin is likely to be delayed by six months.

  • Shares of Verizon Communications Inc.
    VZ,
    +0.58%
    rose 0.6% after it announced it would sell Verizon Media, including Yahoo and AOL brands, for $5 billion to private-equity firm Apollo Global Management Inc.
    APO,
    -0.05%.

  • Domino’s Pizza Inc.
    DPZ,
    +2.74%
     said in a Monday filing that it has entered into a $1 billion accelerated share repurchase agreement with Barclays.

  • Shares of GameStop Corp .
    GME,
    -7.41%
     fell 6.5%, after the videogame and consumer electronics retailer announced it has effectively eliminated its long-term debt.

  • Estée Lauder Companies
    EL,
    -7.53%
    shares slid 7.3%, after the cosmetics and beauty company posted stronger-than-expected profit for its fiscal third quarter but sales that missed estimates.

How are other assets faring?
  • Hong Kong’s Hang Seng index
    HSI,
    -1.28%
    fell 1.3%. Bourses in Shanghai and Tokyo were closed. The Stoxx Europe 600
    SXXP,
    +0.58%
    booked a 0.6% gain.

  • The 10-year Treasury note yield
    TMUBMUSD10Y,
    1.609%
    fell to 1.61%, following the weakening manufacturing data.

  • The greenback was weaker, trading down 0.3% based on the ICE U.S. Dollar Index
    DXY,
    -0.36%.

  • Prices for gold futures
    GC00,
    +1.38%
    finished 1.4% higher to settle at $1,791.80 an ounce on Comex. U.S. crude futures
    CL.1,
    +1.42%
    were up 1.4% to $64.49 a barrel.

Mark DeCambre contributed reporting



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