*The Fed’s timeline for tapering stimulus and any shifts in expectations for interest-rate increases are key for investors, who have grown used to central-bank stimulus supporting asset prices. The revision follows a period of market volatility stoked by Evergrande’s woes. China’s wider property-sector curbs are also feeding into concerns about a slowdown in the economic recovery from the pandemic.*
*What markets are relieved by was that given the events of this week in terms of China, Evergrande, the debt ceiling dysfunction, some of the growth slowdown. Some of what we’ve been seeing in markets, I think the risk was that the Fed would announce tapering and a timeline today. I think that would have been an unexpected surprise that would have created some volatility and some negative reaction by investors, and that didn’t happen, and so investors are happy.”*
Investor concerns about financial contagion from a potential default by China’s giant property company Evergrande have somewhat abated, but investors are also watching developments in the U.S. Congress on raising the federal debt ceiling.
On Tuesday, the Dow fell 51 points, or 0.15%, to 33,920, the S&P 500 declined 0.08% to 4,354, and the Nasdaq Composite gained 32 points, or 0.22%, to 14,746. The Dow and S&P 500 marked a fourth straight day of losses, which was the worst stretch for the S&P 500 since mid-May.
U.S. equity indexes ended at about the same level they were at before the Fed announcement. Stocks had been stronger earlier in the session after Evergrande agreed to settle interest payments on a domestic bond, while the Chinese central bank injected cash into the banking system. The developments soothed fears of imminent contagion from the debt-laden property developer that had pressured equities and other riskier assets at the start of the week.
*Wall Street cheered Wednesday’s Federal Reserve decision to keep its massive bond-buying program and ultralow interest-rate regime in full swing to support financial markets and the economy through the pandemic — for now.*
*Stocks trimmed some of their gains after Fed Chairman Powell said plans to taper the central bank’s bond buying program could be announced in November after the Fed’s next policy-setting meeting. Fed officials also penciled in an interest-rate increase in 2022.*
*Stocks came off their highs after Fed Chair Powell said the central bank’s further progress test has been met on its inflation mandate and “many” members believe that test has been met on the employment mandate as well. This indicates the Fed is just about ready to begin removing stimulus.*
“My own view is the test for substantial further progress on employment is all but met,” Powell said during a press conference. “For me it wouldn’t take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met.”*
*The central bank has been buying $120 billion a month of Treasurys and mortgage-backed securities since the start of the Covid crisis. The Federal Open Market Committee voted unanimously to keep short-term rates anchored near zero on Wednesday.*
The Dow and S&P 500 still booked their largest daily percent gains since late July, while the Nasdaq scored its best session advance in about a month, according to Dow Jones Market Data.
While a taper announcement, maybe, is coming in November, that they didn’t do so today just reflects a still uber dovish committee
*Powell said there remains “a range of views” among Fed officials about the state of the U.S. economic rebound, while warning that higher interest rates next year aren’t set in stone, in an afternoon news conference.*
It looks like we are on track for a November tapering announcement. But again the “dot plots” now implying four rate increases, or a 1% increase, through the end of 2023 would be a “pretty significant rate of increases.” Dots are just dots. They are going to move. It’s not a done deal, or a forecast, just an estimate.
By: via @AlliesFin Serve Stock Market
