American flags fly outside the New York Stock exchange, Friday, Jan. 14, 2022, in the Financial District in New York. Stocks are off to a solid start on Wall Street Thursday, Jan. 27, as markets settle down following several days of whiplash moves both up and down. (AP Photo/Mary Altaffer)
Stocks rose in late morning trading on Wall Street Thursday as markets settle down following several days of whiplash moves both up and down.
Investors were encouraged to see strong figures for U.S. economic growth, which showed the biggest climb in GDP last year since 1984. Markets are still processing the latest indications from the Federal Reserve a day earlier that the central bank is increasingly concerned about inflation and plans to raise interest rates and take other steps soon to fight it.
The S&P 500 index rose 1.2% as of 11:41 a.m. Eastern. More than 80% of stocks within the benchmark index made gains and it is now in the green for the week.
The Dow Jones Industrial Average rose 475 points, or 1.4%, to 34,648 and the Nasdaq rose 1%.
Technology stocks led the gains as investors felt comfortable shifting money into areas of the market with higher risks. Technology heavyweight Microsoft rose 3.2% and iPhone maker Apple rose 2.2%.
Banks, communications companies and industrial firms also made solid gains. Utilities and real estate companies, which are considered less risky, lagged behind.
Bond yields fell. The yield on the 10-year Treasury fell to 1.81% from 1.84% late Wednesday.
The U.S. economy expanded 5.7% in 2021, the strongest calendar-year growth since a 7.2% surge in 1984 after a previous recession. It ended the year by growing at an unexpectedly brisk 6.9% annual pace from October through December as businesses replenished their inventories, the Commerce Department reported.
The upbeat report came a day after the Federal Reserve raised some concerns about how quickly it will ease support for markets and the economy. It said it “expects it will soon be appropriate” to raise interest rates, and investors expect the first in a series of rate hikes to happen in March. The Fed also said it would phase out its monthly bond purchases, which have been intended to lower longer-term rates, in March.
The Fed has been monitoring the impact of inflation on businesses and consumers and Fed Chair Jerome Powell acknowledged that the pressure isn't lessening. That could mean the central bank has to take an even more aggressive approach to raising interest rates and removing the support it put in place for markets.
Businesses from a wide range of industries have been warning investors for months that supply chain problems and higher raw materials costs have hurt operations. Higher prices being passed on to consumers could prompt a spending pullback and hurt economic growth.
Investors are closely watching the latest round of corporate earnings to gauge just how much companies are getting hurt by inflation and how they expect it to impact them moving forward.
The technology sector has been hit particularly hard by supply chain problems with a longstanding computer chip shortage. Semiconductor equipment maker Lam Research fell 5.8% after saying supply chain issues worsened in December. Chipmaker Intel fell 5.6% after giving investors a weak profit forecast.
The chip shortage continues to hurt the auto industry. Tesla fell 6.6% after telling investors that the shortage will stop the company from rolling out new models in 2022.
Solid earnings did help push shares for many other companies higher. ServiceNow rose 11.7% after the maker of software that automates companies’ technology operations reported strong financial results. Electronic storage maker Seagate Technology rose 14.3% and jeans maker Levi Strauss rose 10.9% after also reporting encouraging financial results.
Even with Thursday's gains, every major index is in the red for the year. The S&P 500 is down 7.6% and the tech-heavy Nasdaq is down 12.6%. The downturn is having an impact on initial public offerings after a record 2021, said Matthew Kennedy, senior IPO market strategist at Renaissance Capital.
Three large companies have pulled their IPOs after setting a proposed price, he said, which compares with one postponement during January 2021. Several smaller deals have delayed their offerings.
“The current market volatility makes it nearly impossible to get deals done,” he said.
He also said the shift in Fed policy has spooked investors, particularly for growth stocks, where even a few rate increases can have an impact on the value of future cash flows. He added that the reset for the IPO market could turn out to be healthy in the long term and part of the natural market cycle.7 Great Biotech Stocks to Buy in Expectations of Better Days Ahead
The biotechnology (biotech) sector was one of the best performing sectors in 2020. Many companies saw their stock prices rise as the race was on for a Covid-19 vaccine.
However, many of these companies were pre-revenue companies. Or they were companies that only had one or two in-market products or therapies. And as the calendar turned to 2021, investors took notice. And what went up quickly went down. And in the case of the biotech sector, it came down hard.
One way to tell is to look at biotech ETFs. One of the most popular ETFs, the VanEck Vectors Biotech ETF (NYSEARCA:BBH) is down more than 15%. So you can imagine what it’s been like for many individual biotech stocks. If you’re a buy-and-hold investor, you’re licking some wounds right about now.
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