3 THINGS TO KNOW
Dow Jones Changes: Exxon, Raytheon and Pfizer are all being removed from the Dow Jones Industrial Average with new additions – Salesforce, Amgen and Honeywell – joining the index on Monday, August 31, 2020. This was driven by Apple’s 4-for-1 stock split, which goes into effect on that same day; this will mean a reduction in the index’s weight in the Information Technology sector. The addition of Salesforce will specifically help partially offset that reduction. (Source: Standard & Poor)
Fed’s Inflation Framework: As noted by the fixed income team last Thursday, Fed Chairman Jerome Powell formally announced changes to the Fed’s approach to inflation. The Fed is now shooting for inflation that averages 2% over time, meaning inflation could moderately “overshoot” 2% at times – especially after periods where it was persistently below 2%. Decisions to raise interest rates in the future will be based on evidence that inflation had hit the target of 2% instead of reliance on forecasting rising inflation, which has been consistently wrong. Demographic changes, technology and globalization have all contributed to keeping inflation lower than one would have assumed. (Source: Fed)
S&P 500: The S&P 500 closed at an all-time high for a sixth consecutive trading session on Friday, while the Nasdaq Composite also reached a record. August has been a strong month with the S&P up a robust 7.2%, led by Apple’s 17.7% rise. The S&P 500 is now up nearly 10% year-to-date as of August 30, 2020, which seems light-years from the pain suffered in March.