Dow Jumps 100 Points As Stocks Rise For A Fourth-Straight Day–Here’s What Could Go Wrong

Topline

Stocks are on track for a fourth-straight day of gains after posting their worst weekly performance since late October last week, but booming fundamentals in the stock market are starting to push up bond yields, fueling concerns among experts that investors may be ready to remove some risk.

Key Facts

Shortly after the open, the Dow Jones industrial average was up 136 points, or 0.5%, while the S&P 500 ticked up 0.4% and the tech-heavy Nasdaq climbed 0.5%.

Shares of payments company PayPal are surging 6% and hitting new highs after the Silicon Valley firm crushed earnings expectations and said it will invest in a new business unit focused on cryptocurrency services after a better-than-expected rollout late last year for its crypto-trading offering.

Other firms heading up market gains after better-than-expected earnings Thursday include industrial conglomerate Parker-Hannifin, up 6%, manufacturer Snap-On, also up 6% and Coach-parent Tapestry, whose shares are up 4% thanks to revenue gains online and in China.

Posting a rare earnings miss, Cigna fell short of analyst expectations with its quarterly report Thursday morning, due largely to higher medical costs and earnings guidance for this year that also failed to impress; shares are down 5%.

Despite the booming corporate earnings, the labor market remains far worse than it was before the pandemic, with another 779,000 Americans filing for new unemployment benefits last week–boosting the number of people receiving some form of jobless benefit to nearly 18 million but coming in slightly below economists expected. 

The better-than-expected jobless data–along with ongoing developments on the stimulus front–helped boost yields on the 10-year Treasury by about 15 basis points to 1.15%, lifting them back to levels unseen since March 2020; yields typically move inversely with stock prices. 

Crucial Quote 

“Fundamentals are great, and that’s the problem,” Vital Knowledge Media Founder Adam Crisafulli said Thursday morning, adding that fundamental tailwinds continue to build with the Covid backdrop improving, earnings that continue to surpass expectations and massive fiscal stimulus (Crisafulli says President Joe biden could have a bill on his desk by early March). “The question isn’t whether fundamentals will crumble–they will only get better–but instead the question is whether yields will rise to such an extent that some of the 2020 price-earnings expansion is reversed.” Experts have warned such a development could provoke a stock-market correction.

What To Watch For

One lingering market concern has been the uncertainty stemming from meme-stock trading that catapulted the prices of heavily shorted stocks to astronomical highs last week. Treasury Secretary Janet Yellen will meet with the heads of the Securities and Exchange Commission, Federal Reserve and other regulators Thursday to discuss the recent volatility in those Reddit-fueled meme stocks. In a statement, the Treasury said Yellen wants to determine whether activity surrounding the frenzy is “consistent with investor protection and fair and efficient markets.”

Tangent

Global markets, meanwhile, were largely mixed Thursday. Japans’ Nikkei 225 ended the day down 1.1%, and Shanghai’s SE Composite ticked down 0.4%. In Europe, the FTSE 100 is down 0.2%, and Germany’s DAX Index is up 0.4%.

Further Reading

Another 779,000 Americans Filed For Unemployment Last Week (Forbes)

More Stimulus Could Hurt Stocks–Here’s The Indicator To Watch Before It Does (Forbes)

Here’s What Could Spark The Next 10% Market Correction, Bank Of America Warns (Forbes)

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