US stock markets rose after incoming Fed chair Janet Yellen calmed fears the central bank might begin to taper its bond-buying programme before next year. Photograph: Richard Drew/AP
American stock indices the S&P 500 and the Nasdaq ended lower on Monday while the Dow failed to close above its milestone level of 16,000 as stocks were sold off late following cautious comments by the investor Carl Icahn on the equity market.
The Dow and the S&P 500 retreated from record levels with less than an hour to go in Monday’s session. The Nasdaq, which had been down slightly for most of the day, fell 1.1% to a session low. Speaking at the Reuters Global Investment Outlook Summit, Icahn said he was”very cautious” on the stock market, saying he could see a “big drop” because earnings at many companies are fuelled more by low borrowing costs than the strength of management.
He also hinted at his plan for Apple, the most valuable US stock by market value, saying he does not want to fight with the management of the iPhone maker. He said he has no plans to walk away from his investment.
The Nasdaq was hammered by a sell-off in social media and cloud-related stocks, including Facebook, which finished down 6.5% at $45.83.
Dow Jones hits fresh high
The Dow Jones industrial average rose 14.32 points, or 0.09%, to end at 15,976.02. The S&P 500 Index slipped 6.65 points, or 0.37%, to finish at 1,791.53. The S&P 500 had earlier hit 1,802.33 and the Dow touched 16,030.28, their highest levels ever. On Friday, both closed at record highs in their sixth straight week of gains.
A number of US Federal Reserve speakers offered more insights into the central bank’s stimulus. The latest was Charles Plosser, president of the Philadelphia Fed, who said improved economic and labour market conditions suggest the Fed should set a fixed dollar amount on its current bond-buying programme and end the programme when that amount was reached.
William Dudley, the president of the Federal Reserve Bank of New York, said that he was becoming “more hopeful” about the US economy.
But with intervention from the Fed likely to keep interest rates near zero for the foreseeable future, equities are expected to continue to attract yield-seeking investors, even after the Fed starts scaling back its asset purchases.
Traders said the latest impetus for the market gains was last week’s testimony to the US senate by Janet Yellen, President Obama’s nominee to replace Ben Bernanke as head of the Fed.
Yellen calmed fears that the central bank might begin to wind down its bond-buying programme before next year. The programme has been a key support for markets for several months and the central bank believes that despite US GDP growing at a better-than-expected 2.8% in the third quarter, a change in policy could easily push the recovery off track, especially with the unemployment rate edging up from 7.2% to 7.3% in October.
The recent US government shutdown has also caused some disruption to the economic indicators.
The dollar dropped against the yen and euro on Monday after China announced its most sweeping economic and social reforms in nearly three decades, lifting investors’ appetite for higher-yielding currencies. Increased demand for riskier assets had earlier pushed the dollar down to its lowest against the euro since 6 November, while global equity markets climbed on China’s plans.
The euro received some support after data showed the euro zone’s trade surplus grew more than expected in September.