Dollar rises as investors place Fed bets
NEW YORK: Wall Street stocks rose on Friday along with the US dollar and Treasury yields as investors bet that Federal Reserve policy tightening would stay on track after data showed stronger-thanexpected US jobs growth with wage increases that lagged forecasts. Oil prices tumbled after a report showed US crude production rose last week just as OPEC exports hit a 2017 high, casting doubt on efforts to curb persistent oversupply. US Treasury debt yields and the dollar rose as investors analyzed how the mix of strong jobs and weak wage growth would influence the Fed's plans for an interest rate hike or balance-sheet reduction.
"There is certainly no reason given the data we saw this morning to knock the Fed off the track of probably one more raise this year and maybe an announcement in September about reducing the bond purchase," said Sean Lynch, co-head of global equity strategy at Wells Fargo Investment Institute in Omaha, Nebraska. Wall Street's S&P 500 stock index closed higher after a selloff on Thursday as investors, while reassured by the strong jobs number, bet weak wage growth would limit the extent of Fed hawkishness. "The fears of rates rising too quickly have dissipated and market participants are looking for bargains," said Andrew Frankel, co-president of Stuart Frankel & Co in New York.
"Maybe there was just enough bad news in a great jobs number to keep the Fed off the gas pedal," he said. The Dow Jones Industrial Average rose 94.3 points, or 0.44 percent, to 21,414.34, the S&P 500 gained 15.43 points, or 0.64 percent, to 2,425.18 and the Nasdaq Composite added 63.62 points, or 1.04 percent, to 6,153.08. The US dollar was up 0.2 percent against a basket of currencies. The greenback hit two-month highs against the yen and was on pace to post its biggest weekly percentage gain against Japan's currency since late April after the jobs data. "On balance, the labor market continues to be solid and despite the softer inflation data as of late, the solid employment data should keep the Fed on course for policy normalization," said Charlie Ripley, investment strategist at Allianz Investment Management in Minneapolis.
In Treasuries, longer dated yields briefly hit multi-week highs. Benchmark 10-year notes were last down 5/32 in price to yield 2.3874 percent, from 2.369 percent late on Thursday. The 30-year bond fell 16/32 in price to yield 2.9289 percent, from 2.904 percent late on Thursday. Bets that some of the world's major central banks are moving closer to unwinding ultra-loose monetary policies affected stocks this week as European Central Bank minutes showed policymakers are open to tightening.
In Europe, German government bond yields had risen to 18-month highs, weighing on stocks there. The pan-European FTS Eurofirst 300 index lost 0.12 percent but MSCI's gauge of stocks across the globe gained 0.19 percent. US crude fell 2.61 percent to $44.33 per barrel and Brent was last at $46.82, down 2.68 percent.
The week ahead
Technology shares surrendered their leadership in the US stock market over the past month, but the fast-growing group may soon resume its outperformance and maneuver back into pole position. Upcoming earnings reports for the technology sector , whose profits are expected to outpace the overall S&P 500 for the 11th consecutive quarter, could lure back investors who have been concerned about expensive valuations and that too many people may have piled into the big names.
The sector has slumped 4 percent since the first week of June, while financials have climbed more than 5 percent and healthcare has gained 3 percent. This has prompted speculation that investors may have been cashing out their tech profits to move into those groups. "Technology has taken a rest, but it's going to heat up again, and I see tech returning to favor the second half of the year," said portfolio manager J. Bryant Evans of Cozad Asset Management in Champaign, Illinois.
For the first five months of 2017, tech was the talk of the stock market, far outperforming the other 10 major S&P 500 sectors and sparking the Nasdaq Composite to its strongest first half since 2009. "I think of (tech's recent swoon) as profit-taking rather than driven by change in the fundamental factors," said John Praveen, managing director of Prudential International Investments Advisers in Newark, New Jersey. "The fundamentals are still positive for the sector."
Analysts estimate tech's second-quarter earnings rose 11.2 percent, with semiconductor companies accounting for much of the gain, according to Thomson Reuters I/B/E/S. The increase tops the estimated 7.9 percent rise for the overall S&P 500 and is well above every sector except for energy, whose performance will be skewed because of negative year-earlier results. "The tech sector has the highest growth expectations and only moderate uncertainty," Morgan Stanley equity strategists said in a research note.
Given tech's outsized position - 22 percent of the market value of the S&P 500 - the sector's growth is critical to overall US corporate profit gains. For the second quarter, tech profit growth alone is expected to account for nearly 28 percent of the S&P 500's overall increase in earnings, or nearly half if energy were excluded. "In an economy that still seems to have some growing pains, consistent growth is worth paying up for," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
Tech's second-quarter revenue growth is projected at 7.2 percent, faster than 4.6 percent for S&P 500 companies overall, according to Thomson Reuters I/B/E/S. There is "growth on the top line, which is more important at this point in the cycle, than in the bottom line only," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. This earnings season, she will focus on companies' comments about sales activity.