US stocks closed sharply higher on Wednesday after the Federal Reserve’s monetary policy update broadly met investors’ expectations.
The central bank didn’t announce a rollback of its easy money policies but said that conditions could soon be met to do so.
Wall Street scored the rebound it attempted and failed at Tuesday: All three major indexes closed 1% higher.
The Dow and S&P 500 recorded their best days since July. For the Nasdaq Composite, it was the best day in a month.
All right, the two-day Federal Reserve meeting has wrapped up, and Chairman Powell has spoken. The Fed’s actions today were largely as expected.
Key takeaways:
A reporter turned the focus of the Fed press briefing onto Chairman Powell himself, asking whether the Fed chair, who was appointed by Donald Trump, whether he had any expectations about his reappointment or future replacement.
“I have nothing for you on that today. Sorry.”
Powell’s term is up in February 2022, and President Joe Biden hasn’t publicly revealed his thinking on the matter.
Fed Chair Jerome Powell joined a chorus of officials in underscoring the importance of the US raising its debt limit to avoid defaulting.
Powell declined to comment on what conversations, if any, he’s had with elected officials on a plan for such an unprecedented event.
But, he said, “I think we can all agree” the United States needs to pay its bills on time. “It’s very important that the debt ceiling be raised in a timely fashion,” he added.
The Treasury has warned that it will run out of cash next month, and it’s up to Congress to authorize a debt ceiling suspension. That typically procedural vote has turned into a deeply partisan standoff.
Investors got what they wanted from the Federal Reserve on Wednesday at the end of the central bank’s two-day meeting: The easy-money policies that have been propping up Wall Street since the spring of 2020 will continue for a while longer.
And when the Fed does begin to tighten the spigot, the central bank said investors will have plenty of notice. “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”
Investors have long expected the Fed to clamp down on the stimulus measures as the recovery was coming along nicely over the summer. But a disappointing August jobs report pushed those expectations back.
Stocks remained in the green Wednesday afternoon.
So stocks are rallying, not least because nobody expects fireworks from the Federal Reserve later. Even so, this has been a turbulent week for investors.
So what should we make of this?
What’s been worrying people over the past months came to a head this week, said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management: inflation, Fed policy, China growth, US growth, fiscal issues, debt ceiling negotiations.
“All that against the question of whether the market can still go up,” he told Alison Kosik on the CNN Business digital live show Markets Now.
To be sure, investors do have reasons to be worried. But when it comes to the American consumer, the backbone of the economy, “I think the market moves higher because the economy is in great shape,” Schutte said.
As for the Fed’s announcement later today, Schutte’s view is aligned with that of many investors: “I don’t think they will formally announce tapering,” but rather hint that they will do so later this year, he said. “I think they will want to see one more employment report.”
Fear that Chinese real estate developer Evergrande might stumble under its enormous $300 billion debt pile weighed heavily on the market at the start of this week. As of midday, it is rebounding hard.
“The markets have concluded that it’s not going to be a systemic event [if Evergrande defaults] that will bleed into other markets… and look like they have moved on,” said Danielle DiMartino Booth, chief strategist and CEO at Quill Intelligence.
In the United States, “we live in an economy where defaults filter through to all kinds of investors,” she said, adding that it’s unclear what a default in China might look like, not least because the Chinese government might step in.
Evergrande isn’t the only source of drama this week, as the debt ceiling debate in Washington is raging. With so much uncertainty in the market it seems unlikely that the Federal Reserve will make any big moves in its policy update this afternoon.
“In the Fed’s capacity as the shepherd of financial stability, I certainly think the Fed is watching” what’s going on with Evergrande, DiMartino Booth said on the CNN Business digital live show Markets Now.
With regards to the debt ceiling and the worry that the federal government could run out of money, “I think there’s a higher probability… that we do see a debt default or something that appears to say we’re at the brink of default,” she added. “Congress can legislate all day long and pass as much stimulus as they want but until the debt limit is raised you can’t pay for it.”
The movie theater industry is coming off a terrible year and companies like AMC Theatres, the world’s largest chain, are still working to return to normalcy.
Maybe Dogecoin will save the day!
AMC (AMC) CEO Adam Aron has been vocal on social media in a bid to reach out to investors directly — especially those who have helped turn AMC into a meme stock — and he’s been tweeting about Doge recently. Here’s Wednesday’s tweet:
Aron is on a cryptocurrency kick, as he tweeted on Tuesday that “by year-end 2021, AMC will take Bitcoin, Ethereum, Litecoin and Bitcoin Cash for online payments.”
It’s unlikely embracing crypto will be a silver bullet that turns the tide of the industry. But hey, after the hell the pandemic has wrought, theaters are up for just about any currency they can get.
A bipartisan group of former US Treasury secretaries warned Congressional leadership Wednesday that waiting until the last minute to raise the debt ceiling raises the risks of an “accidental default” that would be disastrous for the economy.
“Even a short-lived default could threaten economic growth,” the letter to House Speaker Nancy Pelosi reads. “It creates the risk of roiling markets, and of sapping economic confidence, and it would prevent Americans from receiving vital services. It would be very damaging to undermine trust in the full faith and credit of the United States, and this damage would be hard to repair.”
The letter was signed by Henry Paulson, who served under Republican President George W. Bush, as well as four former Treasury secretaries under Democrats: Michael Blumenthal, Robert Rubin, Timothy Geithner, Larry Summers and Jack Lew.
The letter acknowledges the polarized state of American politics – but stressed that shouldn’t cause a US default.
“For 232 years, our nation has consistently paid all of its bills, in full and on time,” the letter reads. “Unshakeable creditworthiness has long been a wellspring of strength for our nation, and protecting it is a sacrosanct responsibility. No Congress or President has allowed our country to default.”
Update: This post has been updated to reflect that Jack Lew also signed the letter.
It’s lunchtime and stocks are still in the green. Looks like this Wednesday turnaround might really happen.
The Dow is up 1.3%, or nearly 450 points, while the S&P 500 is up 1.2%.
The Nasdaq Composite is trailing behind ever so slightly, up 1.1%.
That said, investors will only have eyes (and ears) for Federal Reserve Chairman Jerome Powell this afternoon. The Fed’s policy update is due at 2pm ET, followed by the press conference at 2:30pm ET.
America’s housing market is still in a weird place. The pandemic spurred a buying frenzy that drove the cost of buying a home so high that even more people are priced out of the nation’s real estate.
“Everyone knows about shortages that we’re experiencing these days,” and housing is on that list, too, said BMO Senior Economist Jennifer Lee in a note to clients.
Actually, it’s been that way for a while.
Existing home sales dipped last month, falling to 5.9 million from 6 million in July. This slight drop could be a harbinger of a long awaited slowdown in the sector.
“After reaching a pandemic-driven frenetic pace last year, the housing market has stabilized,” said PNC senior economist Abbey Omodunbi. “House prices have increased at an extraordinary pace, leaving many potential buyers on the sidelines.”
In the near-term, low borrowing costs, improvements in the job market as the economy recovers and options to work remotely will continue to fuel demand for homes, Omodunbi added.
FedEx (FDX) shares slid more than 8% in premarket trading following a weaker-than-expected earnings report.
The shipping company said late Tuesday that its first quarter results were “negatively affected” because of a “constrained labor market which impacted labor availability, resulting in network inefficiencies, higher wage rates, and increased purchased transportation expenses.”
Those issues resulted in a $450 million year-over-year increase in costs and a 7% drop in quarterly profits. As a result, FedEx lowered its full-year earnings forecast.
Shares are down roughly 10% for the year.
US stocks opened higher on Wednesday ahead of the Federal Reserve monetary policy update at 2pm ET.
It’s been a turbulent week for stocks: Monday brought a big selloff on worries about the debt crisis of Chinese real estate giant Evergrande, as well as America’s own debt ceiling debate.
China’s Evergrande Group will pay interest due Thursday on one of its bonds, but it’s keeping rattled investors guessing about the fate of second, bigger payment due this week.
The troubled Chinese real estate conglomerate said Wednesday in a filing with the Shenzhen Stock Exchange that issues regarding a payment on a domestic yuan bond have been “settled through negotiations.”
Many questions remain unanswered, though. Evergrande did not elaborate on the terms of the payment. The amount of interest it owes on the bond is about 232 million yuan ($36 million), according to data from Refinitiv.
US stocks tried but failed to rebound Tuesday, after concerns about potential contagion from Chinese real estate giant Evergrande’s debt crisis led to the worst session for the market in months.
However, stocks appear to be making a turnaround and are higher.
Here’s where things stand as of 6:30 am ET:
The Federal Reserve is unlikely to take its foot off the stimulus gas pedal this week as the recovery has run into some roadblocks.
Most notably: the Delta variant.
Mere weeks ago, investors were convinced the central bank would announce a tapering of its massive pandemic stimulus program at its September meeting, which began Tuesday. But some somber economic data, including a very disappointing jobs report and changes in consumer sentiment on the back of rising Covid-19 cases, have pushed back expectations for the taper timeline.
The Department of Justice has sued two major airlines on Tuesday, alleging the companies created an alliance that raised prices and reduced choice for air passengers traveling to and from major cities in the United States’ Northeast region.
JetBlue (JBLU) and American Airlines (AAL) last year created the “Northeast Alliance” that operates out of four major airports in Boston and New York City.
The DOJ says the two companies committed to trading information on which routes to fly, when to fly them, who would fly them, and what size planes to use for each flight.
