Dow Stock Index hits record high after Fed raises interest rates
Washington (Dec 14) U.S. stocks rose slightly on Wednesday after the Federal Reserve raised rates for the second time in a decade.
The Dow Jones industrial average rose briefly rose more than 50 points to hit a new record high, while the Nasdaq and S&P 500 both gained around 0.1 percent. The three major indexes had chopped around the flatline right after the Fed's decision was announced.
The Federal Open Market Committee raised its target range from 0.25 percent to 0.5 percent to a range of 0.5 percent to 0.75 percent. The overnight funds rate currently sits at 0.41 percent. In addition to approving the much-expected increase, the FOMC also indicated a higher rate than projected back in September when it last released the quarterly look ahead. The committee now expects three rate hikes in 2017, two or three in 2018 and three in 2019.
Most market participants were expecting the U.S. central bank to raise rates by 25 basis points According to the CME Group's FedWatch tool, market expectations for a rate hike were almost 100 percent.
That said, the environment in which the Fed will likely raise rates is different than last year, said Thomas Wilson, senior investment manager at Brinker Capital. "A year ago, you had high-yield spreads that were at two-year highs. which were telling you something was wrong," he said. "This year, the macro environment has changed dramatically."
"The high-yield market is now giving you confidence the economy has improved," Wilson added.
Chair Janet Yellen is expected to hold a news conference at 2:30 p.m. ET.
U.S. Treasurys gained ground ahead of the announcement, with the two-year note yield falling to 1.162 percent and the benchmark 10-year yield sliding to 2.429 percent. Treasury yields, however, have risen sharply since Donald Trump was elected president, as optimism surrounding possible inflationary policies — such as fiscal stimulus and tax cuts — have flooded the market.
"It is quite amazing how the stock market went from loving slow growth, QE and no rate hikes over the past 7 years and has now transitioned that love to the hopes for quicker growth, no QE and rising interest rates," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note. "The $64k question in coming years is when higher rates will matter for equity valuations that have only been seen in 1929 and 2000 in many respects."
John Traynor, CIO at People's United Bank, said "I call this the rising TIDE," noting that some of the themes that could cool off the stock market rally include trade, interest rates, the stronger dollar and high expectations for the incoming administration to deliver.
Stocks have also rallied sharply since Nov. 8, with the Dow within 1 percent of hitting 20,000 for the first time. The blue-chips index has also notched 16 record closes since the election.
In economic news, the Producer Price Index rose 0.4 percent in November, above the expected 0.1 percent increase. Meanwhile, November retail sales rose less than expected as households cut back on purchases of motor vehicles. Industrial production fell 0.4 percent. Business inventories posted their largest decline in 11 months, falling 0.2 percent.
"The disappointment by the former report offers a reminder that the current rally for the broader indices is based primarily on improving sentiment thanks to the election of the friendliest federal government to business since the ashes of the financial crisis," said Jeremy Klein, chief market strategist at FBN Securities.
The U.S. dollar fell 0.22 percent against a basket of currencies, with the euro near $1.066 and the yen around 115.08.
In oil markets, U.S. crude for January delivery fell 1.83 percent to trade at $52.01 per barrel, after the Energy Information Administration reported a drawdown of 2.6 million barrels.
The Dow Jones industrial average fell 4 points, or 0.02 percent, to 19,907, with Exxon Mobil leading decliners and Visa the top advancer.
The S&P 500 fell 1 point, or 0.09 percent, to 2,269, with energy leading eight sectors lower and information technology leading risers.
The Nasdaq composite slipped 4 points, or 0.08 percent, to trade at 5,459.
About nine stocks declined for every five advancers at the New York Stock Exchange, with an exchange volume of 338 million and a composite volume of 1.66 billion in midday trade.
Source: CNBC
