Stan Choe
US stocks are ticking higher after the US Treasury Department said it will buy more US government bonds in a move that eased pressure on financial markets worldwide. Strong profit reports for the spring from Estee Lauder, Target and other US companies are also helping to support the stock market.
The S&P 500 rose 0.3 per cent and is on track for its first gain in four days after setting its all-time high last week. The Dow Jones Industrial Average was up 133 points, or 0.3 per cent, as of 2:30 p.m. Eastern time, and the Nasdaq composite was up 0.2 per cent.
The Australian sharemarket is set to edge higher, with futures at 5am AEST pointing to a rise of 13 points, or 0.1 per cent, at the open. The ASX fell for a sixth-straight session on Wednesday. The Australian dollar was stronger at US71.24¢. A busy day on the reporting season calendar is ahead, with and Northern Star among companies due up.
The stock market has been under growing strain as worries about inflation, big government debts and other factors drive Treasury yields higher in the bond market. That ultimately makes borrowing money more expensive for everyone, which slows the economy and undercuts prices for stocks and other investments.
But Treasury yields fell in the morning after the US Treasury Department said it will at least double the size of its planned purchases of longer-term Treasurys from September 9 through November 4. The department said it’s doing so “to provide greater liquidity support in longer-dated nominal sectors where there is consistent strong sponsorship from market participants.”
These longer-term 10- and 30-year Treasurys are less beholden to the Federal Reserve, which can raise or lower very short-term interest rates for overnight loans. President Donald Trump has lobbied for the Fed to lower interest rates to help the economy.
Instead, longer-term yields are set by investors in the bond market, who are deciding how much interest they need to get paid by the US government in exchange for lending it money. And recently, they have been demanding more in interest to make up for the growing risks of high inflation, continued government deficits and other factors.
After the Treasury department’s announcement, the yield on the 10-year Treasury fell to 4.66 per cent from 4.71 per cent late Tuesday. It, though, remains well above its 3.97 per cent level from before the war with Iran sent oil prices and worries about inflation much higher.
The 30-year Treasury yield, which has recently touched its highest level since 2007, fell more sharply to 5.2 per cent from 5.28 per cent late Tuesday.
On Wall Street, Moderna and Merck helped lead the market after they announced encouraging initial results from a study of a cancer vaccine they co-developed. The new drug showed better recurrence-free survival in melanoma patients who had a combination of it and Keytruda, a prescription immunotherapy drug made by Merck, than with Keytruda alone.
Moderna soared 138.4 per cent, while Merck jumped 12.4 per cent.
The continuing parade of US companies to report bigger profits for the spring than analysts expected, meanwhile, continues to support stocks.
Estee Lauder rallied 17.4 per cent after CEO Stéphane de La Faverie said a key measure of its revenue growth accelerated for a fourth straight quarter. It reported growth in revenue around the world, with the strongest in mainland China.
The skin care company reported earnings per share of 39 cents, after excluding some restructuring and other one-time expenses. That’s up from just 9 cents a year earlier and was better than the 32 cents that analysts expected, according to FactSet.
Such growth is imperative because stock prices tend to follow the path of corporate profits over the long term. And strong growth helps allay criticism that stock prices shot too high in their runs to records.
Target rose 5.9 per cent, Lowe’s added 2.8 per cent and homebuilder Toll Brothers climbed 5.3 per cent after they all also reported better profits for the latest quarter than expected.
They helped offset drops for some Big Tech stocks, which restrained the overall market. Broadcom fell 4.3 per cent, for example, and was the heaviest weight on the S&P 500. It and other winners of the artificial-intelligence boom have been swinging sharply through the summer on worries that their stocks may have shot too high and that the AI frenzy may not be sustainable if it doesn’t produce big-enough profits.
In stock markets abroad, indexes were mostly lower in Asia and mixed in Europe.
Tokyo’s Nikkei 225 sank 3.2 per cent. South Korea’s Kospi, which has been home to some of the world’s sharpest swings because of its heavy reliance on AI stocks, slumped 5.8 per cent.
AP
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