The futures market is trading lower ahead of the important Federal Open Market Committee’s interest-rate policy announcement later this afternoon. Most traders have priced in a 50-basis-point hike, though a small contingent believes the Fed will raise interest rates by 75 basis points. A 50-basis-point increase would represent a slowing of the interest rate increases that have occurred at the last few meetings. Additionally, all eyes will be on Federal Reserve Chairman Powell’s press conference, where he will explain the Committee’s decision-making process and outlook for future interest rate hikes. Overall, an easing of monetary policy is a positive for stocks.
The stock market jumped higher yesterday after the release of the Consumer Price Index, which showed that inflation rose less than expected in November. Indeed, data showed that prices increased 0.1% month over month and 7.1% year over year. This considerably slowed from 0.4% and 7.7% in October, respectively. Traders believe this will help the Fed move toward easing monetary policy, and they bid up stocks quickly. However, as the day went on, the indices gave up a portion of their early gains. Overall, the S&P 500 finished up 29 points, the NASDAQ rose 113 points, and the Dow Jones Industrial Average gained 104 points.
Advancers outnumbered decliners by a 2.4-to-1.0 ratio. Real Estate Investment Trusts, or REITs, were among the best performers, aided by the decline in long-term interest rate expectations. On the other hand, consumer staples equities were among the weakest, as traders moved away from the slower growth arena.
In commodity news, oil prices climbed yesterday. Expectations have been rising for demand, as China has eased some of its coronavirus-related restrictions.
Elsewhere, U.S. Treasury Bond yields were mixed, with short-term interest rates rising and long-term ones falling. Several short-term rates remain higher than long-term ones, and this inversion sometimes portends a coming recession. The Chicago Board Options Exchange Volatility Index, or VIX, fell yesterday as demand for options protection declined.
Several economic reports are slated for release in the days ahead. These include initial jobless claims, retail sales for November, and the Empire State and Philadelphia Manufacturing Indexes on Thursday. Standard & Poor’s U.S. Manufacturing Purchasing Managers Index will be released on Friday.
Additionally, several dozen earnings reports will be released in the days ahead, giving insight into how companies are faring. Overall, we think most investors will be looking toward inflationary data and how they will impact the Federal Reserve’s interest-rate policy. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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