Stocks jumped to new record highs and the Dow shot past 20,600 on Wednesday after more reports showed the U.S. economy continues to strengthen.
The Dow Jones industrial average climbed 107 points, up 0.5% to a new closing high of 20,611.86.
Also building upon their record highs set in the previous session were the S&P 500 and Nasdaq composite, up 0.5% to 2349.25 and 0.6% to 5819.44, respectively.
The encouraging data could push the Federal Reserve to raise interest rates more aggressively from the record lows marked during the Great Recession.
Wednesday’s economic reports give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it may happen at the central bank’s next meeting in March. Retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012.
Fed Chair Janet Yellen said in testimony before a Congressional committee that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates, echoing her comments from a day earlier. The central bank raised rates in December for just the second time in a decade, after keeping rates at nearly zero to help lift the economy out of the Great Recession.
This morning, Minneapolis Fed Chairman Neel Kashkari penned an essay “Why I Voted to Keep Rates Steady” in which the former Goldmanite says that while core inflation “seems to be moving up somewhat, it is doing so slowly, if at all.” He adds that “financial markets are guessing about what fiscal and regulatory actions the new Congress and the Trump administration will enact. We don’t know what those will be, so I don’t think we should put too much weight on these recent market moves yet.”
Repeating a on often heard lament about the lack of rising wages, Kashkari points out that “the cost of labor isn’t showing signs of building inflationary pressures that are ready to take off and push inflation above the Fed’s target” and adds that “it seems unlikely that the United States will experience a surge of inflation while the rest of the developed world suffers from low inflation.”
With a December rate rise pretty much in the books, investors will turn their attention to signals about future moves when the Federal Reserve meets next week.
Here’s what to watch in the coming days.
Markets have in recent weeks priced in a 100 per cent chance that the Fed lifts interest rates for the first time in a year, by 25 basis points, when it meets next week. But investors will look beyond the rate decision to the summary of economic projections, particularly the so-called dot plot of interest-rate projections, and Fed chair Janet Yellen’s press conference as they try to guess at future rate rises.
“We do not expect a change in the dot plot from the September meeting,” Michelle Meyer, economist at Bank of America, said. “That said, the risks are asymmetric in that there is a better chance of a move higher than lower in the trajectory.”
And with central banks around the world now expecting the baton to pass from monetary to fiscal policy, investors will also watch for her remarks on proposals ranging from tax reform to deregulation. “It is too early for the Fed to change its outlook based on Donald Trump,” Alan Levenson, Chief Economist at T. Rowe Price, said. “The Fed won’t talk about Mr Trump and fiscal policy and not just during the press conference, but also during the meeting, [as] that could show up in transcripts.”
Instead, most expect Ms Yellen’s Congressional testimony from November to serve as a blueprint. She is expected to urge lawmakers to focus on boosting productivity and to note the importance of regulatory reforms in helping stave off another financial crisis.
Not even the threat of an interest rate hike next week from the Federal Reserve could derail the U.S. stock market’s record-setting run as Wall Street posted its best five days since the presidential election and doubled down on its bet of better times ahead under new political leadership at the White House.
The bullish vibe on Wall Street is best illustrated by the blue chip Dow Jones industrial average, which surged nearly 600 points, or 3.1%, on its way to posting a fresh all-time high on each trading day of the just-ended week.
The Dow, which is up 13.4% this year, is now within 243 points of Dow 20,000, a milestone few imagined was possible at the bottom of the bear market back on March 9, 2009, when the Dow fell to 6,547.05.
The Standard & Poor’s 500 index, Nasdaq composite and small-stock Russell 2000 also finished the week at record levels.
The big gains came even though Wall Street is pricing in a nearly 100% chance of an interest rate hike from the Federal Reserve Wednesday, its final meeting of the year. Wall Street is expecting a quarter of a percentage point rise by the Fed, which would mark the U.S. central bank’s first rate hike of 2016, despite forecasts at the start of the year for three or four hikes.
Following the Fed’s meeting Wednesday, Wall Street’s attention will turn to its policy statement, its updated projections for the economy, inflation and future rate hikes, as well as Fed chair Janet Yellen’s comments during a press conference with reporters.
The big run-up in stock prices, up to this point, has been based mainly on hopes that Trump’s policies will boost economic growth as well as corporate sales and profits
The Federal Reserve could raise U.S. interest rates “relatively soon” if economic data keeps pointing to an improving labor market and rising inflation, Fed Chair Janet Yellen said on Thursday in a clear hint the U.S. central bank could hike next month.
Yellen said Fed policymakers at their meeting earlier in November judged that the case for a rate hike had strengthened.
“Such an increase could well become appropriate relatively soon,” Yellen said in prepared remarks that were her first public comments since the United States elected Republican Donald Trump to be the country’s next president.
Yellen, who was to deliver the remarks to lawmakers at 10 a.m. (1500 GMT) on Thursday, said the economy appeared on track to grow moderately, which would help bring about full employment and push inflation up and toward the Fed’s 2 percent target.
As we reported first thing this morning, one of the burning questions troubling Wall Street at this moment, is whether president elect Donald Trump plans on reshuffling the Fed, eliminating its so-called “independent” and perhaps going so far as firing or “requesting” Janet Yellen’s resignation.
To be sure, there has been sufficient animosity between Trump and the Fed chair: recall that in early September, Trump accusedthe Fed of “keeping the rates artificially low so the economy doesn’t go down so that Obama can say that he did a good job. They’re keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It’s a very false economy. We have a bad economy, everybody understands that but it’s a false economy. The only reason the rates are low is so that he can leave office and he can say, ‘See I told you.'”
Trump’s allegation made it all the way to the September FOMC meeting during which Hilsenrath asked if it is true that the Fed is keeping interest rates intentionally low for the Obama administration. Yellen responded as follows: “I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. We are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see is affecting the outlook. We do not discuss politics at our meetings and we do not take politics into account in our decisions.”
Additionally, on several occasions Trump has hinted – if not outright stated – that Yellen should resign. Which is why, as we noted in our earlier post this morning, both JPM and Goldman Sachs had to chime in and address the question, with both major banks suggesting that Yellen would easily coast through the end of her term, if not longer.
With the US economy bouncing back in the third quarter, investors turn their attention to the Federal Reserve’s monetary policy meeting and the latest US jobs report.
Here’s what to watch in the coming days.
With the uncertainty surrounding the fast approaching US presidential election, the Federal Reserve is expected to sit pat when it meets next week, despite fresh data that show the US economic recovery remains on track.
Economists expect the Fed on Wednesday will leave interest rates unchanged and federal fund futures currently imply just a 17 per cent chance of move in November. There will be no press conference with Fed chair Janet Yellen after the statement. Again economists suggest there are two areas of focus in the statement, namely comments on the balance of risks and forward policy guidance.
“The November 2nd FOMC meeting should be considered a placeholder meeting,” Michelle Meyer, economist at Bank of America, said. “If the Fed is successful, the meeting will likely come and go without much action in the markets.”
She added: “We think the Fed’s objective is to signal that a hike is highly likely in December but that the path thereafter will be extraordinarily shallow. The market is pricing in a 70 per cent chance of a December hike, which the Fed is likely to perceive as appropriate.”
U.S. stocks kicked off the new week with sharp gains as oil prices rallied and Wall Street readies for the start of the third–quarter earnings season and awaits more news from the Federal Reserve and watches politics in the homestretch to the presidential election.
The Dow Jones industrial average rose 88.55 points, or 0.5%, to 18,329.04. The Standard & Poor’s 500 stock index was up 9.92, or 0.5%, to 2163.66 and the Nasdaq composite rose 36.27, or 0.7%, to 5328.67 and briefly traded above its record closing high.
A rally in the oil patch powered stocks, with U.S.-produced crude jumping 3% to $51.34 a barrel.
All eyes on Wall Street are on corporate earnings this week, as the reporting season kicks off unofficially Tuesday with results from aluminum maker Alcoa and gains more import on Friday with reports from three major banks (Wells Fargo, Citigroup andJPMorgan Chase). The outlook for overall profits for the S&P 500 is not bright, as analysts are expecting earnings to contract 0.7% in the third quarter, which if it occurs would mark the fifth straight quarter of negative growth, according to earnings tracker Thomson Reuters I/B/E/S.
The Federal Reserve and interest rates will also be a topic of discussion, following a solid but slight miss Friday on the September jobs report. The 156,000 new jobs created last month were below the 170,000 jobs analysts’ had expected, but job creation was still strong enough to keep the nation’s central bank on track for its first interest rate hike of the year later this year, with Wall Street placing odds of roughly 60% of a rate hike at the Fed’s December meeting.
The week gets started on Monday with a banking holiday in Canada and the US. Canada is celebrating Thanksgiving while in the US banks will closed in observance of Columbus Day (but the US stock markets will be open).
As for the rest of the week, below are the risk events and releases that could impact your trading
FOMC Meeting Minutes: Wednesday October 12 at 2 PM ET/1800 GMT. At the last FOMC meeting the Fed kept rates unchanged. However three voting members dissented. The meeting minutes will be released on Wednesday and will potentially give traders more of an insight into the thinking of the FOMC members
US retail sales: Friday, October 14 at 8:30 AM ET/1230 GMT. The US retail sales for September expected to rise by 0.6% versus a -0.3% decline in August. Stripping out auto and gas, the month-to-month gain is expected to rise by 0.3% versus a -0.1% decline. Finally the control group is also expected to rise by 0.3% (versus -0.1%)
German ZEW economic sentiment index. October 11 at 5 AM ET/0900 GMT. The German ZEW index for October is expected to rebound to 4.0 from 0.5% last month (the high for the last 12 months has reached 19.2. The low -6.8). The current situation index is expected to rise to 55.5 from 55.1.
Fed Chair Yellen speaks. Friday, October 14 at 1:30 PM ET/1730 GMT). The Fed’s Yellen is speaking at the federal reserve bank of Boston’s annual research conference. The topic Is “Macroeconomic Research after the Crisis”. It will be the first opportunity for the Fed chair to speak after the most recent employment report.
China Trade Balance: Wednesday, October 12. China’s Trade balance for the month of September is scheduled to to show a trade surplus of 364.5B Yuan ($53B USD). Tis compares to 346B last month ($52.05B).
After Friday’s payrolls miss, the market’s initial reaction was to aggressively fade the probability of a near-term Fed rate hike, as September odds initially tumbled, only to quickly rebound into the afternoon. What catalyzed this jump? As we reported at the time, the move was almost entirely driven by an unexpected note by Goldman’s Jan Hatzius who bucked the trend other sellside lemmings, and instead of punting the September hiking date to December, the Goldman strategist said that the weak jobs report was nonetheless “strong enough” to prompt him to boost his Sept. rate hike odds from 40% to 55%.
Realizing the severity of his prediction, and the collapse in credibility he would suffer is he is – again – wrong (as we have duly documented, the past two years have been absolutely abysmal for Goldman predictions and recommendations), earlier today Goldman took time away from his holiday schedule and penned a note to explain why he is confident that, contrary to every other forecaster, he expects a better than even chance of a rate hike to be announced in just over two weeks when the Fed meets on September 20-21.
As he puts it, Yellen’s Jackson Hole speech used “blunt language” for a Fed chair, “which would have been unnecessary if she was only trying to convey a general sense that rates would be moving higher over time, or to signal a potential hike that was still 3½ months away. There are plenty of other opportunities to prepare markets for a move before the December meeting.”