Buckle up for a crazy day on Wall Street. The Dow rose to a new high early Tuesday, but then fell back after the Federal Reserve warned about social media stocks being ‘stretched’ in value.
The Dow Jones industrial average rose to a new all-time high Tuesday (17,120), but then retreated to about 0.1% gains. The S&P 500 is now flat, and the Nasdaq is down 0.3% on the tech stock concern.
Here’s what you need to know:
Midterm Fed report: Federal Reserve Chair Janet Yellen is giving her semiannual monetary policy report to the Senate Banking Committee.
She opened her remarks reiterating the Fed’s intention to keep interest rates at historic lows for awhile longer. The economy has improved, but the recovery is not complete, she said. “We judge that a high degree of monetary policy accommodation remains appropriate,” she said.
She said prices for stocks, real estate and high grade corporate bonds remain “in line with historic norms.” But she acknowledged that valuations some markets, such as low-rated corporate debt, “appear stretched.”
In the Fed’s written report to Congress, the central bank singled out social media and biotechnology stocks as being “substantially stretched.”
The Global X Social Media Index, an ETF that tracks social media stocks, and the iShares Nasdaq Biotechnology ETF both fell more than 1%.
Bank earnings: Goldman Sachs and JPMorgan were the top gainers on the Dow after both reported quarterly earnings that beat analysts’ expectations.
The results came one day after Citigrou reported earnings that beat expectations and announced a $7 billion settlement with the federal government over mortgages it sold in the run-up to the financial crisis.
Johnson & Johnson also reported earnings that beat expectations. The maker of consumer health care products boosted its outlook for full-year earnings as well. But the stock was down more than 1%, making it the biggest drag on the Dow.
In economic news, the government said retail sales increased 0.2% in June from the month before. That was a smaller gain than expected, but economist said the report showed strength below the surface.
In economic news, the government said retail sales increased 0.2% in June from the month before. That was a smaller gain than expected, but economist said the report showed strength below the surface.
Tobacco tie up: Reynolds American and Lorillard announced plans to merge in a cash-and-stock transaction valued at $27.4 billion. Under the terms of the deal, Reynolds will sell certain brands and assets to Imperial Tobacco, while British Tobacco will maintain its stake in Reynolds.
Shares of Reynolds and Lorillard had rallied ahead of the widely-anticipated merger, but both stocks were down sharply after the news came out.
Stock market movers — Boeing, Valero Energy: Shares in Boeing were up as the planemaker and its main rival Airbus woo customers at the aviation industry’s biggest annual gathering. Valero shares were down nearly 3% after the oil refiner told investors that quarterly earnings would come in below market expectations.
Michael Kors stock fell on a negative analyst report.
Overseas markets: European markets were slipping lower, after Germany’s ZEW index of investor sentiment came in weaker than expected. Concerns about Portugal’s Banco Espirito Santo also weighed on European markets. BES shares plunged amid concerns that a company linked to the troubled bank might miss a debt payment. But the stock recovered later in the day following upbeat comments from its CEO.
Asian markets were mixed.
