Stocks hover after strong Fed rally
David Russell | [email protected]
European shares are rallying by 1 percent to 2 percent, led by higher-risk countries such as Spain and Italy. Asia was mostly higher in the overnight session, with Japan and Australia rallying sharply while China continues to struggle.
The S&P 500 rose 1.66 percent to a new closing higher of 1810 yesterday after the Federal Reserve announced that it would reduce asset purchases by $10 billion to $75 billion a month. While it might appear bearish on the surface, the move resulted from an improving economy and had been expected for months. Policymakers also suggested that monetary conditions will remain accommodative long into the future.
Financials rallied on the news and may stand to gain the most from the statement because the short-term Fed funds rate is expected to remain near zero. At the same time, fewer bond purchases will let longer-term rates rise, increasing the yield curve and bank profits.
Our researchLAB market scanner also shows an emerging trend of strength in homebuilders and related companies such as building materials and real-estate services. Most of those stocks have struggled this year because of higher interest rates, but recent data including housing starts, building permits, and the NAHB sentiment index have shown improving conditions in the industry.
Today is the last session with an active calendar before Christmas next Wednesday. Initial jobless claims come out at 8:30 a.m. ET, followed at 10 a.m. ET by the Philadelphia Federal Reserve's regional economic index and existing home sales. Nike, Red Hat, and Cintas issue quarterly results this afternoon.
In company-specific news, Rite Aid is down about 10 percent on weak guidance for 2014. ConAgra, Accenture, and Oracle rose on strong quarterly results, and AK Steel is climbing almost 8 percent after forecasting a profitable fourth quarter.
Gold fell 2 percent and silver is sliding 4 percent on the Fed news. Both appear to be at risk of breaking down to new multi-year lows. Copper also declined half a percent. Energy is modestly higher, led by a 1.5 percent gain in natural gas. Most agricultural products are also posting small gains. Currencies are little-changed.