Market Snapshot: Dow and S&P 500 end higher, close to all-time records, while Fed’s Beige Book points to inflation, labor shortages

How did stock indexes trade?

• The Dow Jones Industrial Average DJIA, +0.43% rose 152.03 points, or 0.4%, ending at 35,609.34, after earlier trading above it 35,625.40 Aug. 16 closing high and carving out a fresh intraday record at 35,669.69 in the process.
• The S&P 500 SPX, +0.37% added 16.56 points, or 0.4%, finishing at 4,536.19, after earlier topping its Sept. 2 closing high at 4,536.95.
• The Nasdaq Composite Index COMP, -0.05% fell 7.41 points, or 0.1%, ending at 15,121.68 and snapping a 5-day win streak.

On Tuesday, the Dow rose 199 points, or 0.56%, to 35457, the S&P 500 increased 33 points, or 0.74%, to 4520, and the Nasdaq Composite gained 107 points, or 0.71%, to 15129.

What drove the market?

U.S. stock benchmarks nearly clinched new record closes, after the Dow touched an intraday record and the S&P 500 ended a fraction below its closing record set almost seven weeks ago.

The yield-sensitive Nasdaq Composite gave up earlier gains though, after attempting to advance for a sixth straight gain, pressured lower by the benchmark 10-year Treasury yield climbing above 1.6%, even as corporate earnings for the third quarter continue to delight investors.

“Obviously, this is an earnings rally and the rally is continuing,” said Peter Cardillo, chief market economist at Spartan Capital, in a phone interview. “By next week, we will be able to grade the season, which I think will probably be an ‘A’ because earnings are coming in better than expected.”

Good third quarter corporate earnings are helping investors overcome some doubts about the impact of the coronavirus delta variant, supply chain disruptions and the Federal Reserve’s likely move to start withdrawing some of its easy-money policies.

Fundstrat Global Advisors lifted its end-year S&P 500 forecast to 4,800 from 4,700. In a note to clients, strategists led by founder Tom Lee said they see a “strong risk-on environment” as under way, helped by a typically strong year-end seasonal pattern that follows October.

Investors were cooling slightly on technology stocks, but buying cyclical stocks seen benefitting from the ongoing economic recovery, with a rotation under way into healthcare XLV, +1.43%, consumer staples XLP, +0.58%, utilities XLU, +1.58% and real estate XLRE, +1.53%.

However, inflation concerns remain an issue. Fed governor Randal Quarles said he was beginning to focus more of his attention on inflation and that there are “significant upside risks” to the widely-shared view that price pressures will decline sharply next year, in a Wednesday speech to the 2021 Milken Institute Global Conference.

Quarles also said he will support a decision at the Fed’s meeting in two weeks to begin tapering the central bank’s $120 billion in monthly bond purchases of Treasurys and agency mortgage-backed securities. Fed Reserve Gov. Christopher Waller on Tuesday said the central bank should begin tapering its monthly purchases starting next month.

Giorgio Caputo, senior investment analyst at JO Hambro Capital Management, said that while the economy appears to be moving past its earlier “air pocket” tied to global coronavirus cases and severe supply-chain bottlenecks, that tapering of bond purchases by the Fed will be important.

“We are going to be going through the removal of $120 billion of monthly liquidity that’s been coming into markets,” he told MarketWatch. “That’s the mother of all buyback plans.”

“If there’s one thing to be mindful of, and respect, it’s the power of liquidity,” Caputo said.

In economic data, the Fed’s latest Beige Book survey of economic conditions released Wednesday pointed to a U.S. economy that still is growing at a solid pace, but labor shortages and supply-chain bottlenecks that have been restraining growth and triggering higher inflation.

“It’s becoming more of a fact that even Fed members are worried about inflation being more structural, as opposed to temporary, and you have rising commodity prices,” Cardillo said.

Which companies were in focus?

• Shares of Pinterest Inc. PINS, +12.77% jumped 12.8% Wednesday, after a Bloomberg News report said PayPal Holdings PYPL, -4.91% approached the image-sharing platform about a potential deal.
• Blackstone Inc. BX, +1.50% shares rose 1.5% Wednesday after the private-equity giant said it plans to acquire a majority stake in Spanx Inc., a maker of womenswear, in a deal that values the brand at $1.2 billion.
• Ford Motor Co. F, +4.02% shares rose 4% Wednesday after Credit Suisse praised the Detroit automakers “significant turnaround” under way, after a cycle of disappointing quarterly earnings. Ford reports third-quarter results next week.
• Tesla TSLA, +0.18% shares added 0.2% ahead of its quarterly update after regular market hours on Wednesday conclude.
• Shares of Netflix Inc. NFLX, -2.17% fell 2.2% after the streaming-video company reported a bounce in third-quarter revenue and subscriber numbers, but a slightly disappointing fourth-quarter forecast.
• Shares of Novavax Inc. NVAX, -14.76% fell 14.8% Wednesday. Citing sources, Politico reported Tuesday that the biotech group is facing big hurdles in proving it can produce a COVID vaccine that is up to regulatory standards.
• Shares of Biogen Inc. BIIB fell 0.6% on Wednesday after the company beat expectations for the third quarter despite lower-than-expected utilization of Aduhelm, its controversial and closely watched new Alzheimer’s disease treatment. 
• Shares of Abbott Laboratories ABT rallied 3.3% Wednesday, after the healthcare company reported third-quarter profit and sales that rose well above expectations, with the strongest growth seen in its diagnostics business, and provided an upbeat full-year outlook.

How did other assets fare?

• The yield on the 10-year Treasury note TMUBMUSD10Y rose 1 basis point to 1.635%, near its highest since mid May. Yields and debt prices move in opposite directions.
• The ICE U.S. Dollar Index DXY, -0.02%, a measure of the currency against a basket of six major rivals, was down 0.2% at 93.56.
• Oil futures finished higher, with the U.S. benchmark CL00 up 1.2% to settle at $83.87 a barrel. Gold futures GC00 close higher, rising 0.8% to settle at $1,784.90 an ounce.
• The Stoxx Europe 600 SXXP closed 0.3% higher, while London’s FTSE 100 UKX edged up 0.1%.
• The Shanghai Composite SHCOMP closed down 0.2%, while the Hang Seng Index HSI gained 1.4% in Hong Kong. Japan’s Nikkei 225 NIK inched up 0.1%.

Barbara Kollmeyer contributed reporting to this article