Dow Gets Boost From Banks as Yields Jump on Fed's Inflation Focus

By Yasin Ebrahim

Investing.com – The Dow advanced Thursday as banks were boosted by a surge in Treasury yields after the Federal Reserve chairman laid out plans to aid the central bank its battle to strengthen inflation. 

The Dow Jones Industrial Average rose 0.57%, or 160 points. The S&P 500 added 0.17%, while the Nasdaq Composite slipped 0.34%.

Powell unveiled the long-awaited update on the Fed's framework, saying that the central bank will adopt an “average inflation” target that could allow inflation run above its 2% target. When inflation is running below 2% for a period of time, appropriate monetary policy will be taken. Under the proposed changes, the central bank also signaled a shift from its long-standing narrative that tight labor markets trigger a faster pace of inflation. "(E)mployment can run at or above real-time estimates of its maximum level without causing concern, unless accompanied by signs of unwanted increases in inflation," Powell added.  

"The bottom line here is that Mr. Powell and his colleagues have given themselves significantly more room to maintain zero rates and a swollen balance sheet over the next couple of years, as the economy recovers from the Covid shock," Pantheon Macroeconomics said.  

Financials, mostly banks, led the move higher in broader market. They would get a lift from rising bond yields, which boosts the net interest income banks earn. The U.S. 10-year Treasury yield hit a more than two-month high.

Bank of America (NYSE:BAC), Goldman Sachs Group (NYSE:GS) and Citigroup (NYSE:C) were up more than 1%, while JPMorgan Chase (NYSE:JPM) jumped more than 3%.

In consumer staples, Walmart (NYSE:WMT) surged 4.6% as the company confirmed that it would partner with Microsoft to acquire social media company TikTok.

Microsoft (NASDAQ:MSFT) was up about 2.5%, but that did little to stop weakness in tech as the company's contemporaries like Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOGL) were down about 1%.

Google has come under scrutiny as the government weighs bringing an antitrust suit against the search-engine giant, with reports suggesting that lawmakers are investigating whether Google is selling bundled products is stifling competition.

In healthcare, Abbott Laboratories (NYSE:ABT) surged almost 8% as U.S. President Donald Trump reportedly plans to unveil a $750 million deal to purchase 150 million Covid-19 tests from the company.

The news added to a wave of positive news about tests and potential vaccines at a time when the number of new cases appears to be slowing across the U.S.

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Energy had limited upside in the broader market as oil prices fell despite production cuts related to Hurricane Laura, which made landfall along the U.S. Gulf Coast on Thursday.