The Dow Jones Industrial Average reversed higher on Friday after Federal Reserve Chair Jerome Powell delivered a speech at the Jackson Hole economic symposium. Powell indicated that the central bank will proceed cautiously with any further rate hikes, as inflation has moderated but the economy still faces risks from the coronavirus pandemic. The Dow gained 0.7%, while the S&P 500 rose 0.8% and the Nasdaq Composite advanced 1.2%. Software stocks led the market, boosted by strong earnings from Salesforce.com (CRM).
Powell Signals Prudence On Rate Hikes
In his speech, Powell said that the Fed has made “clear progress” toward its goals of maximum employment and price stability, but he also acknowledged that the economic outlook is “highly uncertain” due to the delta variant of Covid-19. He said that the Fed will “carefully assess” incoming data and the evolving risks before making any changes to its monetary policy stance.
Powell also reiterated that the Fed’s current inflation target is 2%, and that the recent surge in prices is largely due to “transitory factors” related to the reopening of the economy. He said that inflation expectations remain well anchored, and that the Fed will use its tools to prevent inflation from running too high or too low.
Powell’s speech was widely seen as dovish by investors, as he did not provide any clear timeline for tapering the Fed’s $120 billion monthly bond purchases, which have been supporting the financial markets since the onset of the pandemic. He also did not signal any urgency to raise interest rates, which are currently near zero.
The market reaction was positive, as stocks reversed early losses and bond yields fell. The yield on the 10-year Treasury note dropped to 1.31%, down from 1.34% before Powell’s speech. The dollar also weakened against other major currencies, as a more accommodative Fed reduces the appeal of holding U.S. assets.
Salesforce Beats Earnings Expectations; Software Stocks Rally
One of the biggest gainers on Friday was Salesforce.com, which soared 7.3% to a new all-time high after reporting better-than-expected earnings for its second quarter. The software giant posted revenue of $6.34 billion, up 23% year over year, and adjusted earnings per share of $1.48, beating analysts’ estimates of $6.24 billion and $0.92, respectively.
Salesforce also raised its guidance for the full year, projecting revenue of $26.2 billion to $26.3 billion, up from its previous range of $25.9 billion to $26 billion, and adjusted earnings per share of $4.36 to $4.38, up from its previous range of $3.79 to $3.81.
Salesforce’s strong results lifted other software stocks, as investors bet on the continued growth of cloud computing and digital transformation amid the pandemic. The iShares Expanded Tech-Software Sector ETF (IGV), which tracks a basket of software companies, jumped 2.4% to a record high. Some of the notable performers in the sector included Adobe (ADBE), which rose 3%, ServiceNow (NOW), which gained 3.4%, and Shopify (SHOP), which climbed 4%.
Other Market Movers
Among other stocks making headlines on Friday:
- Peloton Interactive (PTON) fell 8.5% after reporting a wider-than-expected loss for its fourth quarter and issuing a disappointing outlook for its first quarter. The fitness equipment maker said it expects revenue of $800 million and an adjusted loss per share of $1.05 for its first quarter, below analysts’ expectations of $1 billion and a loss of $0.44, respectively.
- Dell Technologies (DELL) rose 2% after reporting better-than-expected earnings for its second quarter and raising its guidance for the full year. The computer maker posted revenue of $26.1 billion, up 15% year over year, and adjusted earnings per share of $2.24, beating analysts’ estimates of $25.5 billion and $2.03, respectively.
- Gap (GPS) dropped 5% after reporting mixed results for its second quarter and lowering its margin outlook for the full year. The apparel retailer posted revenue of $4 billion, up 29% year over year, and adjusted earnings per share of $0.70, beating analysts’ estimates of $3.8 billion and $0.46, respectively. However, Gap also said it expects its gross margin to be flat to slightly down for the full year, due to higher freight and raw material costs.
