Bears hoped that comments from the Federal Open Market Committee meeting this week might kneecap the rally, says Jon Markman, growth-stock specialist and editor of Strategic Advantage.
The opposite was true. The advance sprang to life after a Fed statement said the central bank will taper fixed-income purchases by only $15 billion per month, starting this month.
Assuming this schedule continues, the central bank would not get back to neutral until next June. This cautious timetable is nirvana for bulls. It takes the Fed out of the picture for eight months.
Bears are in a bind. Seasonal money is flowing into the stock market and third-quarter corporate earnings reports are coming to an end, leaving little news left to spook bulls. There is notional resistance for the benchmark up at 4,700, yet bears cannot assume any lasting relief at that point. Support is 4,540 and 4,470. Expect buyers into every decline.
All three major market indexes hit closing highs for the fourth consecutive session earlier this week. Energy and utilities led the decliners while the consumer discretionary sector was the biggest gainer.
Breadth slightly favored advancers 3-1, and there were 960 new highs vs. 91 new lows. Big caps on the new high list included Novo Nordisk (NVO), Advanced Micro Devices (AMD), CVS Health (CVS), Ford (F), and KKR & Co. (KKR). Kind of a weird mix of tech, pharma, insurance, and cars, but that’s not a bad thing as it’s nicely diversified.
The 10-year US Treasury yield rose five basis points to 1.60%.
The Federal Reserve's Federal Open Market Committee said after its two-day policy meeting, it will begin trimming its $120 billion in monthly asset purchases with a $15 billion reduction in November. The Fed left its benchmark lending rate at near zero, where it has been since the Covid-19 pandemic slammed the US economy in March 2020.
The committee said it would be cutting $10 billion in monthly Treasury securities purchases to $70 billion and $5 billion in agency mortgage-backed securities acquisitions to $35 billion. The decision is based on progress the economy has made while interest rate increases will require further improvement in employment, Fed Chairman Jerome Powell said in a press conference after the FOMC meeting.
“Our decision today to begin our tapering or asset purchases does not imply any direct signal regarding our interest rate policy,” Powell said. “We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate.”
In other economic news, ADP said US nonfarm private employment rose by a whopping 571,000 jobs in its monthly survey. Analysts expected a 400,000 increase. ADP attributed October's gains to a recovery in leisure and hospitality employment amid falling Covid-19 cases.
New orders for US factory goods rose 0.2% in September, ahead of expectations for a 0.1% increase in a survey compiled by Bloomberg. New orders were up 1% in the previous month. The Institute for Supply Management's US services index jumped to 66.7 in October from 61.9 in September and compared with expectations for a rise to 62. Good surprise.
West Texas Intermediate crude oil slumped 4.6% to $80.04 a barrel.
In company news, Zillow Group (Z) swung to a loss in the third quarter despite an increase in revenue. It also unveiled plans to wind down its Zillow Offers operations, and said the move is expected to cause it to cut a quarter of its workforce. Shares plunged nearly 25%. “Ultimately, we determined that further scaling up of Zillow Offers is too risky, too volatile to our earnings and operations, provides too little opportunity for return on equity, and serves to narrow a portion of our customers,” the company said in a statement.
Activision Blizzard (ATVI) delivered earnings beat in the third quarter but its sales and earnings guidance for the fourth quarter as well as full-year 2021 lagged market expectations. Shares slumped 14%.