Stock Market Update

[BRIEFING.COM] The S&P 500 (+0.7%) and Nasdaq Composite (+1.5%) moved further into record territory while the Dow Jones Industrial Average closed little changed from yesterday. The Russell 2000 declined 0.4% after yesterday's 6% surge. 

The S&P 500 and Nasdaq Composite were higher through the whole session, hitting session highs in response to Fed Chair Powell's press conference, which followed the unanimous FOMC vote to cut the target range for the fed funds rate by 25 basis points to 4.50-4.75%, as expected.

The positive response in equities wasn't related so much to anything the Fed Chair said about policy, but rather more about what he didn't say -- or imply. Specifically, he didn't implicitly remove the possibility of another rate cut at the December FOMC meeting. Mr. Powell reiterated, as we thought he might, that policy is not on a preset course and that decisions will be made on a meeting-by-meeting basis.

The Fed chair seemed to be marveling at the strength of the economy and the Fed's policy settings, both of which he thinks are in a very good place. He deferred answering questions about how president-elect Trump's policy proposals might affect the Fed's decision-making, noting simply the Fed can't really model for them because it doesn't know any of the specifics yet.

As an aside, he sounded terse indicating he wouldn't resign his position if president-elect Trump asked him to, and said simply that the president firing or demoting him is not permitted under the law.

The major indices ultimately settled below session highs while Treasury yields, which moved to session lows during the press conference, settled near intraday lows. The 10-yr yield dropped nine basis points to 4.34% and the 2-yr yield dropped five basis points to 4.22%.

The initial upside bias in stocks was related to momentum from yesterday's post-election rally, along with a fear of missing out on further gains. A batch of economic data that was mostly in line with expectations also helped the positive bias. Today's releases featured a smaller than expected uptick in weekly jobless claims (to 221,000 from 218,000; Briefing.com consensus 222,000) and a preliminary reading of the Q3 Productivity/unit labor costs report that featured a smaller than expected increase in productivity (2.2%; Briefing.com consensus 2.3%) and a bigger than expected rise in labor costs (1.9%; Briefing.com consensus 0.5%)

• Nasdaq Composite: +28.4%
• S&P 500: +25.2%
• S&P Midcap 400: +18.0%
• Dow Jones Industrial Average: +16.0%
• Russell 2000: +17.5%

Reviewing today's economic data:

• Weekly Initial Claims 221K (Briefing.com consensus 222K); Prior was revised to 218K from 216K, Weekly Continuing Claims 1.892 mln; Prior was revised to 1.853 mln from 1.862 mln
  • The key takeaway from the report is essentially the same as last week. Layoff activity remains calm, but for employees who do get laid off it is more challenging to find a new job, which is a reality consistent with a softening labor market.
• Q3 Productivity-Prel 2.2% (Briefing.com consensus 2.3%); Prior was revised to 2.1% from 2.5%, Q3 Unit Labor Costs-Prel 1.9% (Briefing.com consensus 0.5%); Prior was revised to 2.4% from 0.4%
  • The key takeaway from the report is that productivity growth is helping to keep labor costs in check.
• September Wholesale Inventories -0.2% (Briefing.com consensus -0.1%); Prior was revised to 0.2% from 0.1%

Friday's economic calendar features the preliminary November University of Michigan Consumer Sentiment survey at 10:00 ET.