• The S&P 500 printed fresh record highs in the 4740s as investors cheered Fed Chair Powell’s reappointment.
  • The Nasdaq 100 was initially higher, but downside in growth names amid higher bond yields has pulled the index lower.

US stock markets rallied to fresh record highs as investors cheered the appointment of Fed Chair Jerome Powell for a second term. The S&P 500 lept as high as the 4740s immediately following the 1430GMT US cash open, though since fallen back to about 4710, with on-the-day gains of about 0.2%.

The Nasdaq 100 index, which also lept higher at the open to nearly touch 16.8K for the first time, has since fallen back under 16.5K and is now trading down by 0.5% on the day. Underperformance in the duration-sensitive index is not surprising given the sharp rise in US government bond yields in response to Powell’s renomination as Fed chair. Duration-sensitive stocks, or growth stocks, are those whose valuation is disproportionately based on expectations for future earnings growth rather than on current earnings, thus leaving this valuation sensitive to changes in bond yields. Higher bond yields raise the opportunity costs of holding growth stocks.

The less growth/duration-sensitive stock exposed Dow Jones Industrial Average Index rallied 0.6%, boosted amid a sharp rise in banking names. The S&P 500 financials index was up nearly 2.0% on Monday, boosted amid the sharp rise in US bond yields.

Status-quo, Stability

Markets cheered US President Joe Biden’s decision to select Powell for a second term as Fed Chair, as it maintains the status quo at the bank with regards to policy plans. According to Randy Frederick, managing director of trading and derivatives at Charles Schwab, “markets like predictability … while Brainard may have been a fine choice, the markets would not know what to expect from her even though the general consensus was that it meant lower rates for longer”.