U.S. stocks turned higher Thursday as the transcript of the Federal Reserve’s November meeting contained few surprises other than to reiterate the widespread belief that the central bank is prepared to raise interest rates soon.
Earlier, the market had been pressured as investors turned their focus to a weekend meeting between U.S. President Donald Trump and Chinese leader Xi Jinping amid some skepticism whether the two leaders can reach a consensus on trade.
How are the benchmarks trading?
The Dow Jones Industrial Average
rose 23 points to 25,390, while the SP 500 index
gained 3 points, or 0.1%, to 2,746. The Nasdaq Composite Index
added 10 points, or 0.2%, to 7,302.
On Wednesday, the Dow and the SP 500 logged their best days since March 26 as a dovish interpretation of comments from Federal Reserve Chairman Jerome Powell revived buying interest.
Read: How a looming SP 500 death cross could chase away the stock market’s Santa rally
What’s driving the market?
The Fed minutes showed that almost every member of the Federal Open Market Committee felt comfortable with raising interest rates “fairly soon” as long as job market and inflation data were in line with expectations, bolstering expectations of another rate hike in December.
However, they did note that “monetary policy was not on a preset course,” reiterating the need to be flexible about monetary policy in 2019.
Investors are hoping that Trump and Xi will be able to make progress toward a deal, or at least hit on a framework for further negotiations, that would halt new or expanded tariffs on Chinese imports that the president has consistently threatened over the course of 2018.
Speaking to reporters, Trump said he was “close to doing something with China” but that he wasn’t sure he wanted to, citing revenue from tariffs on Chinese imports. Trump on Thursday tweeted that “billions of dollars” are pouring into the U.S. Treasury from tariffs and that there is “a long way to go.”
Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China, and there is a long way to go. If companies don’t want to pay Tariffs, build in the U.S.A. Otherwise, lets just make our Country richer than ever before!
— Donald J. Trump (@realDonaldTrump) November 29, 2018
What data are in focus?
The number of Americans who applied for unemployment benefits last week rose to 234,000 their highest level in six months, according to the Labor Department, far above the 220,000 forecast of economists polled by MarketWatch. Still, these figures remain at historically low levels.
The Commerce Department reported that consumer spending in October rose by 0.6%, while income rose by 0.5%, above economists estimates, per a MarketWatch poll. The same release showed personal-consumption expenditures, the Fed’s preferred measure of inflation, right at the central bank’s target of 2%, year-over-year.
The National Association of Retailers reported that U.S. pending home sales slid 2.6% in October from September, to it’s lowest level since June of 2014.
What are the strategists saying?
Ryan Nauman, market strategist with Informa Financial Intelligence, attributed the pullback to two factors: investors re-evaluating just how dovish Fed Chair Powell’s Wednesday speech was, and anxiety over the Trump-Xi meeting.
“Powell said we’re ‘just below’ the neutral rate, but the neutral rate is a range between 2.5% and 3.5%. The Fed could raise rates three times next year and still be within that band,” Nauman told MarketWatch.
Read: Why economists insist Powell wasn’t as dovish as the market thinks
According to Nauman, the weakness is also related to U.S-China trade tensions, which he described as “the big elephant in the room.”
“If we get some indication of a pause on new tariffs, that will be great for markets,” he said. “If we get nothing much out of this weekend, you’ll see rising volatility. There’s a big concern about global growth slowing, and new tariffs will only hurt global growth.”
“As is typical with this market, the Fed chair gave an inch and the market took a yard,” wrote Mike O’Rourke, chief market strategist at JonesTrading, in a research note, arguing that while rising interest rates are a headwind for the market, they are not the only headwind.
Read: Did Fed’s Powell ‘light the fuse’ for a year-end stock-market rally?
Also see: Has Fed’s Powell just led investors into a dangerous ‘bear trap’?
“An FOMC pause will not drive more iPhone sales, or reduce Facebook’s expense growth, help Netflix subscriptions, drive Amazon’s sales or end the trade war,” O’Rourke wrote.
Which stocks are in focus?
Nielsen Holdings Plc.
shares rose 4.9% after a Financial Times report that private-equity firm Madison Dearborn has shown interest in a possible buyout.
shares were up 0.5%, after Morgan Stanley upgraded the stock to overweight.
Shares of Dollar Tree Inc.
gained 6.2% after the firm beat third-quarter profit estimates, but fell short of expectations on sales and its full-year 2018 guidance.
tumbled 2.8% after the apparel retailer beat expectations for third-quarter sales and profit, but provided a downbeat outlook for the current quarter.
Shares of Abercrombie Fitch Co.
surged 21% after the clothing company beat earnings and sales estimates by wide margins.
Quest Diagnostics Inc.
sank 9.2% after the lab-test company cut its revenue forecast for 2018.
Shares of Twitter Inc.
slumped 4.5% after a report in Politico outlined Fox News’ silent boycott of the platform, having not posted on it since Nov. 8th.
How are other markets trading?
Asian markets ended mostly higher, following the lead of U.S. markets on Wednesday. Japan’s Nikkei
rose 0.4%, it’s fifth-straight day of gains, while markets in Korea
also logged gains.
Chinese markets were the exception, with Hong Kong’s Hang Seng Index
losing 0.9%, and the Shanghai Composite Index
losing 1.3% as investors worry that this weekend’s Trump-Xi summit will provide no tariff relief for a slowing Chinese economy.
In Europe, stocks closed broadly higher, with the Stoxx Europe 600
rebounded after dipping below $50 for the first time in over a year. Gold
fell while the U.S. dollar
was modestly flat.
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