U.S. Stocks Once Again Set New Highs Amid Positive Reaction To Fed

Stocks moved mostly higher over the course of the trading day on Wednesday, as traders reacted positively to the Federal Reserve’s monetary policy announcement. With the continued upward move, the major averages once again reached new record closing highs.

The major averages all closed in positive territory after a strong move to the upside late in the session. The Dow rose 104.95 points or 0.3 percent to 36,157.58, the Nasdaq jumped 161.98 points or 1 percent to 15,811.58 and the S&P 500 climbed 29.92 points or 0.7 percent to 4,660.57.

The late-day advance on Wall Street came after the Fed announced its widely expected decision to begin scaling back its asset purchases later this month.

The Fed said it plans to reduce its $120 billion in monthly bond purchases by $15 billion per month, citing the substantial further progress the economy has made toward its goals of maximum employment and price stability.

After reducing asset purchases by $15 a month this month and next, the Fed expects similar reductions in the pace of net asset purchases will likely be appropriate each month but said it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.

The accompanying statement continuing to describe elevated inflation as “transitory” as well as comments from Fed Chair Jerome Powell seemed to alleviate fears the central bank would be in a hurry to begin raising interest rates.

In his post-meeting press conference, Powell stressed that the decision to begin tapering asset purchases does not reflect a direct signal regarding interest rate policy.

“We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate,” Powell said.

Powell argued there is still ground to cover to reach maximum employment both in terms of employment and participation.

Earlier in the day, payroll processor ADP released a report showing private sector employment in the U.S. increased by more than expected in the month of October.

ADP said private sector employment jumped by 571,000 jobs in October after surging by a revised 523,000 jobs in September.

Economists had expected private sector employment to climb by 400,000 jobs compared to the addition of 568,000 jobs originally reported for the previous month.

On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.

Economists currently expect employment to jump by 425,000 jobs in October after rising by 194,000 jobs in September, while the unemployment rate is expected to edge down to 4.7 percent from 4.8 percent.

A separate report released by the Institute for Supply Management showed growth in U.S. service sector activity accelerated to a new record high in the month of October.

The ISM said its services PMI climbed to 66.7 in October from 61.9 in September, with a reading above 50 indicating growth in the sector. Economists had expected the index to inch up to 62.0.

Sector News

Networking stocks extended the rally seen in the previous session, with the NYSE Arca Networking Index climbing by 1.8 percent to a new record closing high.

Significant strength was also visible among tobacco stocks, as reflected by the 1.7 percent gain posted by the NYSE Arca Tobacco Index.

Retail stocks also turned in a strong performance on the day, driving the Dow Jones U.S. Retail Index up by 1.5 percent to a record closing high.

Financial, chemical and software stocks also saw notable strength, while oil, transportation, and computer hardware stocks moved to the downside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance, with the Japanese markets closed for a holiday. China’s Shanghai Composite Index dipped by 0.2 percent, while Australia’s S&P/ASX 200 Index advanced by 0.9 percent.

The major European markets also finished the day mixed. While the U.K.’s FTSE 100 Index fell by 0.4 percent, the German DAX Index closed just above the unchanged line and the French CAC 40 Index rose by 0.3 percent.

In the bond market, treasuries closed in negative territory following the Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3 basis points to 1.579 percent.

Looking Ahead

Reports on weekly jobless claims, the trade deficit and labor productivity may attract attention on Thursday, although traders may look ahead to the more closely watched monthly jobs report on Friday.

A number of well-known companies are also scheduled to release their quarterly results after the close of today’s trading and before the start of trading on Thursday.

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