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Financials lead market; rates bounce on expected shift in Fed

August 25, 2020

Stocks are higher as money moves out of bonds following a report that Fed chief Jerome Powell will unveil a major shift in the way the central bank looks at inflation.

The S&P is up 0.2% and the Dow is up 0.3%. The Nasdaq is lagging, as it did yesterday, off 0.2%. The Dow may face some additional pressure until it recalibrates and trades with three new stocks on Monday.

Powell’s Thursday speech from the virtual Jackson Hole gathering is expected to introduce new measure, including inflation averaging, which would let price gains run hotter than the 2% target.

Nominal and real rates are climbing. The 10-year Treasury yield is above 0.7%, nearly six basis points higher. The 10-year inflation-protected yield is up to -1.01%.

Banks, which benefit from higher rates, are pushing the Financials (NYSEARCA:XLF) up to the top of the sectors. Citi, BofA, Wells Fargo and J.P. Morgan are all up more than 1%.

Technology (NYSEARCA:XLK) is having trouble getting in gear for the second day in a row. It’s the weakest sector.

The megacaps are mixed, with Facebook leading and Apple down more than 1%.

In commodities, spot gold is off 0.2%, but crude futures are up nearly 2%.

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