Weak dollar and bumper company earnings drive Wall Street surge, lifting US equities to new highs and putting DJIA on track for sixth record close in a row
The Dow Jones Industrial Average has gone above the 22,000 mark for the first time, boosted by bumper company earnings and a weak dollar, with investors shrugging off the latest upheavals in the White House.
The move comes five months after the Dow passed the 21,000 level, having previously crossed 20,000 in January. This year it is up about 11%, and since the election of Donald Trump as US president in November, it has risen more than 20%. Meanwhile, the S&P 500 and Nasdaq Composite are also near record highs.
This latest Wall Street surge has been helped by forecast-beating results from Apple, which also pleased investors by dismissing suggestions its forthcoming iPhone 8 could be delayed. Apple shares jumped nearly 6% to a record $159 (120), before slipping back to $157 by lunchtime.
The Dow had added 0.2% to 22,007 by lunchtime after hitting a peak of 22,036 during the morning. It is still on track for another record close, the sixth in a row.
US markets have been buoyed for much of this year by hopes that President Trump would unveil tax reforms and infrastructure plans to boost the countrys economy. However, recently his plans to abolish the Obamacare healthcare system received a setback, casting doubt on his ability to push through the rest of his legislative programme. The threat of impeachment is also hovering in the background, while several key members of his team in the White House have resigned or been fired.
However, strong company results from the likes of Goldman Sachs, Boeing and Apple have kept investors buying despite the concerns over Trump. Two-thirds of the S&P 500 companies have reported quarterly results, for the three months to the end of June, and about 72% of them have beaten expectations.
Meanwhile, the dollar has weakened, partly on concerns over Trump and also because of the growing belief that the US Federal Reserve will not raise interest rates again in the immediate future with the economy showing signs of running out of steam.
Bob Doll, chief equity strategist at Nuveen Asset Management, told Bloomberg TV: Returns on [cash] are low, bonds are sitting there doing not much and earnings are coming through. So stocks are the story.
On Wednesday, new figures showed weaker than expected US jobs figures for July, with private sector employment rising by 178,000, rather than the 185,000 predicted by economists. On Friday, the official non-farm payroll numbers are forecast to show a 180,000 increase, down from Junes figure of 187,000.
The dip in the dollar which benefits US exporters pushed the pound to an 11-month high of $1.3245 against the US currency.
Michael Hewson, chief market analyst at CMC Markets UK, said: US investors have continued to turn a deaf ear to the ongoing political intrigue unfolding in Washington DC [and] for now the direction of travel continues to remain positive.
Nasdaq falls in early trading after sinking 1.8% on Friday, with analysts expecting continued uncertainty
Shares in technology companies the driver behind recent record stock market gains kept falling on Monday as investors worried the sector was running out of steam.
On Friday, the tech-heavy Nasdaq Composite Index, home to Alphabet, Apple, Amazon, Facebook, Microsoft and others, fell 1.8% and the slide continued on Monday, with the index down another 0.52% as market analysts anticipated more wobbles ahead of a crucial meeting of the Federal Reserve this week.
Technology stocks have done far better than the rest of the market this year and they were trading close to all-time highs before Fridays drop. The S&P 500 technology index shed 2.7% on Friday for one of its worst days of the year.
The climb has made fortunes for investors, and for tech entrepreneurs. Amazon founder Jeff Bezos has seen his net worth soar by almost $20bn (16bn) in the past five months to $85.2bn. Bezoss fortune is closing in on that of Bill Gates, the co-founder of Microsoft, whose net worth is $89.3bn, according to the Bloomberg Billionaires Index. Bezos could become the worlds richest man if the tech stocks continue to grow.
Jack Ablin, chief investment officer at BMO Private Bank, said it was too early to say whether the last two days of trading would develop into something worse for the tech sector but added that there were worrying signs.
The tech sector has been the stock markets best performer, and some people may be taking profits or rotating their investments into different sectors, he said. But there is also some concern about what the Fed will do.
Stock markets have been bolstered by the huge amounts of money the Fed and other central banks have poured into bond markets in an attempt to keep interest rates at record lows. Low rates have made stock investments more attractive but the Fed has signaled that rates in the US are now on the rise, albeit from a low base.
The Fed meets on Tuesday and Wednesday this week and its chairwoman, Janet Yellen, is expected to announce another rate rise at her press conference when the meeting concludes. Everyone fully expects a rate rise this time, said Ablin. What matters is what the Fed says about the rest of the year. Given their gains, tech is probably going to be the most sensitive sector to be affected by that. We will know more after Wednesday.
Strong quarterly earnings have helped technology stocks fill a void left by financial and industrial stocks after a post-election rally faded. The S&P 500 technology index has risen 18.5% this year and is on track to register its best yearly performance since 2014.
The real heavy lifting, or 40% of the move, that we saw was really on the back of a handful of technology stocks, said Art Hogan, chief market strategist at Wunderlich Equity Capital Markets. So when you have a trade that is so crowded, that unwind becomes as dramatic as the one we saw on Friday.
Investors saw an opportunity to book profits on Friday after Apple shares plunged amid reports that the company is using slower modems in forthcoming iPhones, compared with those used in rival phones.
Shares of the worlds most valuable publicly listed company were off 2.46% at $145.32 on Monday.
Mizuho Securities also cut its rating on Apples stock to neutral from buy on Monday, citing it has outperformed this year and enthusiasm over the upcoming product cycle is fully captured at current levels.
Fergus Shaw, fund manager at Cerno Capital, told Reuters: This is the nature of the tech sector. Valuations do from time to time become very stretched and they come back and anyone who has paid a very high valuation might experience some short-term pain.
Takeover of organic food specialist marks new push into grocery market after launch of Fresh delivery service
Amazon, the worlds most powerful online retailer, has taken a giant stride into traditional retailing, spending $13.7bn (10.7bn) to take over organic food chain Whole Foods Market.
The all-cash deal could be game-changing for the traditional supermarket business. Amazon has long had ambitions to move into the grocery business and launched its food delivery service, Fresh, in the US 10 years ago. It introduced the service in the UK last year after signing a wholesale deal with British supermarket Morrisons.
Amazon is the fourth biggest business in the US and accounts for 43% of online sales there. Whole Foods, founded in 1980, has about 460 stores, including nine in the UK where it has operated since 2004.
Walmarts shares dived 6%, wiping about $13bn off the value of the worlds biggest retailer as the deal ramped up pressure on traditional chains already hit by a rapid change in shopping habits. Shares in the UKs biggest chain, Tesco, and Germanys Metro were also down about 6% each.
This deal is potentially terrifying for other grocers, said Neil Saunders from retail analysis firm GlobalData. Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant. Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat.
Until now, Amazon has had a limited impact on the grocery market. In the US, it still only accounts for less than 0.5% of grocery spending, according to GlobalData.
Bryan Roberts, an analyst at TCC Global, said the deal with Whole Foods suggested that Amazon could now look to buy supermarket chains in its major markets which include the UK, France and Germany. He said: This is planting a huge flag that Amazon is incredibly serious about become a significant grocer.
Analysts at Bernstein suggested Morrisons and Sainsburys were possible targets in the UK alongside Ahold Delhaize in the Netherlands and Frances Carrefour.
But Roberts said Amazon already operated partnerships with a number of regional supermarkets in the US as well as Morrisons in the UK and would not necessarily need to buy them out in order to expand. He said the deal was likely to be focused on acquiring access to Whole Foods brands, supply chain and distribution network to power the growth of its Amazon Fresh delivery service.
Some analysts expressed surprise at the tie-up between Amazon, which has traditionally focused on cut-price deals, and the upmarket Whole Foods, which is nicknamed Whole Paycheck in the US. Roberts said the two firms customer bases were likely to overlap substantially.
Bezos said: Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy. Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades theyre doing an amazing job and we want that to continue.
John Mackey, the Whole Foods co-founder and chief executive, said: This partnership presents an opportunity to maximise value for Whole Foods Markets shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.
Mackey will remain as chief executive and Whole Foods headquarters will stay in Austin, Texas.
Mackeys 0.03% stake in the business, which is listed on the Nasdaq stock market in the US, is worth just over $41m. He is likely to retain a stake in the business.
Whole Foods has had a huge influence on food retail in the US, bringing organic and health foods to the mainstream. But recently growth has stalled.
In February, it announced it would close nine stores in the US after six quarters of decling sales in a row.
The deal with Amazon comes days after Mackey attacked the hedge fund Jana Partners, which had acquired a 9% stake in the retailer. He described Jana as greedy bastards that would have to knock Daddy out if it wanted to take over the company.
Mackey said the business had changed because the more conventional, mainstream supermarkets have upped their game. He added: The world is very different today than it was five years ago.
Amazons move into the grocery market will pile on the pressure for traditional supermarkets around the world which have been affected by shoppers switching to online, smaller local stores and discounters such as Aldi and Lidl.
Lidl is opening its first stores in the US this week as part of a plan to open about 100 by the middle of next year, while Aldi is in the middle of a $3bn-plus expansion plan to take its total number of US stores to 2,000 by the end of next year. In the UK, the traditional big four supermarkets Tesco, Sainsburys, Asda and Morrisons have all lost market share in recent years to the rapidly expanding German chains.
Clive Black, a retail analyst at Shore Capital, said: Amazon is clearly getting into offline as well as online. It is not going to spend nearly $14bn and then close nearly 500 stores. This is going to cause an awful stir in the US and some of those waves will lap into the UK and beyond.
A good fit? How they measure up
Roots Founded by Jeff Bezos in his Seattle garage in 1994. After spending a year building a website and sourcing stock, Amazon opens its virtual doors the following summer, billing itself as the Earths biggest book store with 1m books to choose from.
Annual sales $142.6bn
Head office Seattle
Blue sky thinking Bezos is pouring his billions into his private spaceflight company, Blue Origin, developing rockets capable of shuttling the paying public into space.
Roots College dropout John Mackey and his then girlfriend, Renee Lawson, scrape together $45,000 to open a natural foods store in Austin, Texas, in 1978. In 1980 they join forces with like-minded entrepreneurs Craig Weller and Mark Skiles to open the first Whole Foods Market.
Annual sales $15.9bn
Head office Austin, Texas
Blue sky thinking Mackey wrote Conscious Capitalism, which espouses a business philosophy that is good for suppliers, staff and communities as well as shareholders. A long-term vegan, he more recently co-wrote The Whole Foods Diet, which promotes the health benefits of veganism.