Wall Street ekes out new highs despite rising risk from Delta

Equities updates

Sign up to myFT Daily Digest to be the first to know about Equities news.

Wall Street stocks drifted to new heights while European shares headed for their longest run of record high sessions in at least three decades, as strong earnings outweighed worries about the spread of the Delta variant.

The S&P 500 index of blue-chip US stocks crept up 0.2 per cent to open at another record high on Friday, after entertainment giant Walt Disney released earnings that beat expectations across the board. The company’s shares gained 3.8 per cent. The tech-heavy Nasdaq Composite index was flat.

“Equities still have room to run in the near term, but [US] valuations are stretched to say the least,” said Andrew Patterson, senior economist at Vanguard.

“To think that those levels will persist indefinitely is a tough pill to swallow,” he added, pointing to international markets and value stocks as having more room to grow.

Treasuries rallied on Friday, with yield on the benchmark US 10-year bond falling back 0.03 percentage points to 1.33 per cent. Yields fall as prices rise. Various members of the US Federal Reserve’s policymaking body have offered diverging views on the pace of the US recovery, which will determine when the central bank begins to taper its $120bn in monthly asset purchases.

The breakneck pace of consumer price growth slowed in July, according to data released Wednesday, hinting that at least some of the recent bout of inflation may prove temporary. But investors will be looking ahead to the Jackson Hole summit of global central bankers at the end of the month to get a clearer view from Fed officials.

In Europe, the regional Stoxx 600 index inched up 0.2 per cent to yet new heights — the 10th consecutive session that it has eked out a record. The index is headed for its longest streak of all-time high sessions since at least 1990. The UK’s FTSE 100 gained 0.4 per cent following solid second-quarter growth figures released on Thursday.

Earnings in Europe have been strong, boosting shares, coming in 11 per cent higher than expected so far this quarter, according to figures from Goldman Sachs.

“European equities have done just as well as the US this year, [which is] something to be proud of,” said Sharon Bell, European strategist at the bank, pointing out that after the 2008 financial crisis it took 11 years for earnings per share to recover. By contrast, “earnings this year are easily above the pre-pandemic peak in 2019”.

“In this pandemic it’s the dog that didn’t bark: Europe has had no banking crisis, no sovereign crisis, no debt crisis. Lots of the things that Europe put into place for 2008 have now come to fruition,” she added.

Asian markets were weaker, dented by the spread of the Delta variant of Covid-19 and Beijing’s efforts to rein in key sectors of the economy, including its powerful technology companies. Hong Kong’s Hang Seng index fell 0.5 per cent, with Chinese tech groups Tencent and Alibaba among the laggards, as did the CSI 300 index of companies listed in Shanghai and Shenzhen.

China has adopted a “zero-tolerance” approach to the spread of the Delta variant across the country, prompting authorities to partially shut the world’s third largest port on Thursday after a single case was identified. Global shipping costs are already at record levels.

“The leadership views the economic costs of the zero-tolerance policy as manageable, and much preferable to the uncontrolled spread of Covid-19,” said Ernan Cui, China analyst at Gavekal Research.