After beginning the day solidly higher, then turning on a dime to dip into negative territory following the Fed’s afternoon release of its monetary policy statement, stocks were able to post modest gains to close out the whipsaw session.
The Dow was up over 250 points to begin the day, with industrials leading the way courtesy of upbeat results from Dow member Boeing, as well as a somewhat positive takeaway from last night’s State of the Union address from President Trump.
However, a change in language in the Fed’s statement after agreeing to leave rates unchanged appeared to have rattled the markets and stoked speculation of a possible pick-up in the pace of rate hikes.
Treasury reversed course to finish mixed, and the U.S. dollar was lower, while gold and crude oil prices were higher.
The Dow Jones Industrial Average (DJIA) rose 73 points (0.3%) to 26,150
The S&P 500 Index increased nearly 2 points (0.1%) to 2,824
The Nasdaq Composite gained 9 points (0.1%) to 7,412
In heavy volume, 1.1 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq
WTI crude oil rose $0.23 to $64.73 per barrel and wholesale gasoline added $0.02 to $1.89 per gallon
The Bloomberg gold spot price moved $7.58 higher to $1,346.17 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—shed 0.1% to 89.11
Fed stands pat, ADP employment report tops forecasts, mortgage apps decline
The Federal Open Market Committee (FOMC), meeting for the last time under the leadership of Chairwoman Janet Yellen, concluded its monetary policy meeting, unanimously agreeing to keep the target range for its fed funds rate steady at 1.25%-1.50%. The FOMC, based on information received since it met in October/November, stated that, “Gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low,” removing previous references to disruptions from the hurricanes that hit the U.S. in 2017, adding that “market-based measures of inflation compensation have increased in recent months but remain low.” The Committee also said it “expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.” The Committee also voted to continue its program to shrink its balance sheet that it initiated in October.
The ADP Employment Change Report showed private sector payrolls rose by 234,000 jobs in January, above the Bloomberg forecast of a 185,000 gain, while December’s increase of 250,000 jobs was revised to a 242,000 increase. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader January non-farm payroll report, expected to show jobs grew by 180,000 and private sector payrolls rose by 181,000. The unemployment rate is predicted to remain at 4.1% and average hourly earnings are projected to rise 0.2% month-over-month.
Pending home sales rose 0.5% m/m in December, in line with projections, and following the upwardly revised 0.3% gain registered in November. However, y/y, sales were 1.8% lower, versus the projected 1.7% gain. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which slipped in December but posted the best year in 11 years.
The MBA Mortgage Application Index declined 2.6% last week, following the prior week’s 4.5% gain. The decrease came as a 2.9% drop in the Refinance Index was met with a 3.4% fall in the Purchase Index. The average 30-year mortgage rate gained 5 basis points to 4.41%.
Treasuries were mixed, as the yield on the 2-year note rose 3 bps to 2.16%, the yield on the 10-year note was flat at 2.72%, while the 30-year bond rate declined 3 bps to 2.94%. Treasury yields remain near multi-year highs and pressure on the U.S. Dollar continued keeping it at multi-year lows.
The markets are digesting last night’s first State of the Union address by President Donald Trump and looking to this afternoon’s Federal Open Market Committee (FOMC) monetary policy decision, which will be Chairwoman Janet Yellen’s last as the head of the Central Bank. The FOMC is not expected to announce another rate hike and the decision will be without updated economic projections and press conference by the Chairwoman, but scrutiny will likely be on the statement for clues to how many rate hikes we could see this year.
The economic calendar for tomorrow will remain busy, beginning with preliminary Q4 non-farm productivity and unit labor costs, anticipated to show increases of 0.7% and 0.9%, respectively, followed by weekly initial jobless claims, with economists expecting a slight uptick to a level of 235,000 from the prior week’s 233,000. After the opening bell, the ISM Manufacturing Index and Markit’s final Manufacturing PMI Index for January will be released, with the former expected to decline to a level of 58.6 from December’s 59.7, and the latter to match the preliminary read of 55.5, but up slightly from the prior month’s 55.1. Construction spending will round out the docket, predicted to have gained 0.4% m/m during December.
Europe and Asia mixed on data ahead of Fed decision
European equities were mixed, as the markets digested U.S. President Donald Trump’s State of the Union address and eyed the Fed’s monetary policy decision that will come later today. Also, earnings and economic data were mixed, with German retail sales falling more than expected in December, but the nation’s unemployment change declined more than expected for this month. The Eurozone consumer price inflation estimate came in a bit hotter than expected for this month. The euro and British pound were higher, as the U.S. dollar continues to drop, while bond yields in the region were mixed.
Stocks in Asia finished mixed following the two-day slide in the U.S. yesterday that came amid caution ahead of a heavy dose of earnings and economic events, with the markets digesting U.S. President Trump’s State of the Union address and looking to the Fed’s monetary policy decision later today. Also, the markets are digesting some diverging economic data in the region, with China’s Manufacturing PMI Index unexpectedly showing growth decelerated in January but its services sector companion surprisingly showed growth accelerated. Japan’s industrial production rose much more than expected, though South Korea’s industrial production unexpectedly dropped last month.
Stocks in Japan declined, with the yen choppy after yesterday’s gain, while those issues trading in Hong Kong rose, with financials gaining ground, but energy issues were lower on the drop in crude oil prices as of late, pressuring mainland Chinese equities. Indian securities decreased ahead of the nation’s GDP estimate after the closing bell that showed growth decelerated in 2017 to 7.1% from 8.0%, while listings in Australia rose modestly, as strength in the banking sector outweighed a decline in oil & gas stocks, and stocks in South Korea dipped following its industrial production data.