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After a quick bout of nerves, Wall Street is ready to restart the party.
What’s happening: In testimony before Congress this week, Federal Reserve Chair Jerome Powell reassured lawmakers that the central bank doesn’t plan to raise interest rates or taper bond purchases any time soon. His remarks allowed investors to brush aside their recent jitters.
The Dow notched another record high on Wednesday as it nears the 32,000 mark. Shares of Tesla (TSLA), which have struggled this month, jumped 6%. The electric carmaker, which is richly valued at 1,193 times earnings, has become a barometer for risk-taking sentiment in markets.
Powell delivered a carefully calibrated message to members of the House of Representatives on Wednesday, reiterating that the economic recovery has a long way to go.
Wall Street has been increasingly worried that a strong recovery later this year could trigger a spike in prices as people book vacations and rush to restaurants. That could push the Fed, which is tasked with managing inflation, to pull back some of its support for the economy sooner than expected.
Powell said the central bank will monitor the trend, but reminded lawmakers that low inflation has been a bigger problem in recent decades.
“Inflation dynamics do change over time, but they don’t change on a dime,” he said. “If it does turn out that the unwanted inflation pressures arise and they’re persistent, then we have the tools to deal with that and we will.”
Such bromides were enough for risk takers to reemerge, sending stocks higher and the US dollar back down.
Even meme stocks came back in vogue. GameStop (GME), which announced earlier this week that its chief financial officer would step down as the company shifts its focus to online retail, spiked 104% on Wednesday, while AMC Entertainment (AMC) rose 18%. GameStop (GME)’s stock is up another 58% in premarket trading Thursday.
Cautious voices are once again sounding the alarm. Charlie Munger, the 97-year old vice chairman of Berkshire Hathaway, warned Wednesday that it’s dangerous for investors to keep buying stocks in a “frenzy” just because prices are going up, comparing the GameStop surge to horse racing.
In an interview with CNBC Thursday, Standard Chartered CEO Bill Winters said there are “indications that the broader stock market is frothy.”
Not over yet: US Treasury yields were knocked off their highs following Powell’s testimony, but are now pushing up again. That indicates that inflation fears haven’t disappeared, and could continue to ripple through markets in the days and weeks to come.
Big banks will need much less office space in the future
A growing number of big banks are announcing plans to dump expensive office space, a bet that remote work is here to stay even after the pandemic ends.
HSBC (HBCYF) said this week that it plans to cut its global real estate footprint by 40% “over the next several years,” part of a broader plan to slash costs and pivot its business to Asia.
“The pandemic has accelerated trends in employee expectations and the shift towards more flexible working,” Lloyds said in its earnings announcement Wednesday.
The moves come as millions of office workers around the world have adjusted to working from home after nearly a year. Childcare and long work hours continue to present challenges as the pandemic drags on. But many companies believe they’ve ironed out kinks in communication, and no longer view productivity as a major concern.
What comes next: HSBC will decide whether to keep offices as leases run out. But the cuts won’t affect bank branches or its headquarters in London’s Canary Wharf, where many top financial institutions are located.
Standard Chartered announced last November that it plans to offer flexible work plans to 90% of global staff by 2023.
Some bank executives remain skeptical that the changes brought about by the pandemic will last. Goldman Sachs (GS) CEO David Solomon said Wednesday that he saw working from home as a “temporary thing.”
“I do think for a business like ours, which is an innovative, collaborative apprenticeship culture — this is not ideal for us. And it’s not a new normal,” Solomon said at an industry conference. “It’s an aberration that we’re going to correct as quickly as possible.”
Watch this space: Any shift to more permanent remote work could have major ramifications for the economic recovery in urban centers, which have long relied on commuters to support local businesses and transportation services. Central London and Canary Wharf accounted for over half of London’s economic output in 2017.
Could cracks in the housing market begin to emerge?
The US housing market is still red hot. But there’s growing anxiety about how much longer the party can last.
The latest: Home Depot and Lowe’s (LOW) reported better-than-expected earnings this week, and consumers, eager for more space, remain willing to pay ever higher prices for homes, my CNN Business colleague Paul R. La Monica reports.
The strength of the housing market has even lifted the price of lumber. Timber exchange-traded funds are up sharply this year.
Two concerns have come to the fore, however. Mortgage rates are closely tied to 10-year Treasury bond yields, which have jumped to their highest level in a year. When borrowing is more expensive, that can discourage buyers. Plus, Home Depot declined to give any profit guidance for 2021 when it reported earnings Tuesday. That signal of uncertainty sent shares down 3%. They dropped again Wednesday.
Builders remain confident that the housing boom won’t come to an end just yet.
“The housing market remains very strong, driven by a tight supply of new and existing homes for sale, favorable demographic trends, low mortgage rates and a heightened appreciation for home ownership,” Toll Brothers CEO Douglas Yearley said in the company’s earnings release, adding that he expects market conditions “to continue for the foreseeable future.”
That said: As government bond yields tick up, it’s a sector worth watching.
Anheuser-Busch InBev (BUD), Domino’s Pizza (DMPZF), Best Buy (BBY), Cars.com (CARS), J.M. Smucker (SJM), Moderna (MRNA), Papa John’s (PZZA) and SolarWinds (SWI) report results before US markets open. Airbnb, Beyond Meat (BYND), Etsy (ETSY), Monster Beverage (MNST), Nikola, Salesforce (CRM) and Virgin Galactic (SPCE) follow after the close.
Also today: Initial US jobless claims for last week post at 8:30 a.m. ET. Economists polled by Refinitiv expect another 838,000 applications.
Coming tomorrow: Personal income and spending data arrives as Congress debates President Joe Biden’s $1.9 trillion stimulus package.